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Mid-market Companies See Cash and Revenues Grow

September 14, 2012

Executives at mid-market companies remain guarded about their long-term prospects, but are nonetheless seeing their cash flow and revenue grow, allowing them to finally free up cash and hire more employees.

According to the 2012 Mid-Market Outlook Survey by KPMG LLP, 62 percent of the 388 executives surveyed indicated that their companies have significant cash on the balance sheet—up from 60 percent in KPMG's 2011 survey—and 50 percent said their companies' cash positions have increased from last year.

In addition, 58 percent said their companies’ revenues are up from prior year, and 46 percent indicated they have increased the number of U.S. employees. n what could be a good sign for the economy, 23 percent said that their company's headcount has returned to pre-recession levels. The companies surveyed came from a variety of industries and had annual revenues in the $100 million to $1 billion range.

“The middle market sector has experienced some positive momentum in the past year, but executive leaders aren't about to throw caution to the wind," said KPMG partner Jerry Jolly, who leads the firm's national mid-market practice. “In this year’s survey, executives express concerns over pricing, regulatory and legislative pressures and lack of consumer demand as significant growth barriers, and have pushed back their estimated timeline for economic recovery to 2014 or later.”

When asked about their expectations for the U.S. economy a year from now, 70 percent of the executives anticipate improvement, up from 60 percent in the 2011 survey. In addition, 58 percent of the executives said they do not anticipate substantial economic recovery until 2014-2015 or later—as opposed to 75 percent who, in the 2011 KPMG survey, predicted the recovery would be complete by the end of 2013. While 61 percent of the executives plan to add headcount in the next year, the increases are expected to be modest and, consistent with last year's survey, 15 percent do not expect their company's headcount to ever return to pre-recession levels.

While waiting for the recovery to take the hold, 60 percent of the executives intend to increase capital spending over the next year. The highest-priority investment area is information technology, cited by 43 percent of the executives in the KPMG survey. Other significant areas of investment for mid-market companies are new products or services (39 percent), acquisition of a business (34 percent). Supporting the investment in acquisition findings, more than half of the executives (59 percent) say their companies will likely be involved in a merger/acquisition in the next two years.

“Companies can't wait for the economy to bounce back in order to fuel growth—both organic and inorganic—and will be investing into key areas such as technology, new products and services, and potential acquisitions,” Jolly noted.

Other notable areas for investment include increased spending on geographic expansion (22 percent), expanding facilities (20 percent) and advertising and marketing (19 percent).

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