Confidence Strong As Middle Market Companies Adapt To Offset Economic Uncertainty, Market Disruption

2019 Umpqua Bank Middle Market Monitor Surveys Regional CEOs, CFOs For Insight into Strategic Priorities and Market Direction

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Umpqua Bank

Jul 11, 2019, 12:00 ET

PORTLAND, Ore., July 11, 2019 /PRNewswire/ -- Middle market companies across the Western U.S. are bullish on their growth prospects well into 2020, even as they confront near-term economic uncertainty and ongoing market disruptions. According to the 2019 Umpqua Bank Middle Market Monitor, a survey of 250 middle market companies in California, Washington, Oregon, Idaho and Nevada ("regional"), economic optimism is high among CEOs and CFOs, but strategic shifts are underway as companies look to remain competitive and position themselves for future growth. Of executives surveyed, 73% are actively seeking M&A opportunities, nearly 60% are either looking for new foreign trading partners or altering plans for international expansion, and 56% are accelerating investment in new technology as a top priority.

"The health of middle market companies is of central importance to the overall U.S. economy as they're responsible for producing roughly one-third of U.S. private-sector GDP—which totals about $5-6 trillion¹," said Tory Nixon, chief banking officer at Umpqua Bank. "The prospect of continued growth is instilling confidence in business leaders, but they aren't resting on their laurels. Our research indicates that CEOs and CFOs in the middle market are confident they're on a good growth trajectory but understand that adaptation is critical to being competitive in an ever-changing market environment."

Regional middle market companies expect strong revenue growth
According to the survey, a majority of middle market executives expect continued growth during the second half of 2019 and into 2020, with 57% of executives expressing they are very confident in the U.S. economy. Furthermore, 99% of those surveyed were confident in their own growth prospects, with 35% stating predicted revenue growth to be between 11-15% and 90% anticipating their revenue to grow by more than 5%, which is significantly higher than the World Bank's Global Growth predictions² of 2.6% growth.

Record M&A activity set to continue
U.S.-targeted M&A broke historical Q1 records by reaching a total volume of $537.6 billion across 2,158 deals³, and the Middle Market Monitor indicates that will continue in Q3 and Q4 with nearly 3-in-4 executives expecting their companies to be involved in an M&A transaction in the next year. Further, roughly half (48%) stated they plan to acquire a company in the next 12 months, and 18% of companies plan to be acquired in the same timeframe.

Supporting this volume of potential deal activity, the expectation for growth coupled with an unprecedented amount of liquidity sees continued competition for funding. Middle market firms continue to choose bank financing as the top source of growth strategy funding, with private equity financing being used by one in four (24%) respondents looking at alternative sources.

Trade dispute alters international strategy as companies pivot away from China
In an unpredictable economy, middle market businesses have traditionally sought to leverage international opportunities to improve margins and scale. However, 90% of middle market leaders claim trade disputes with China have already impacted their approach to international business. Nearly 49% are now actively looking for new markets (outside of China) to help drive expansion, and nearly 10% have delayed expansion internationally. That said, only 25% believe the ongoing trade and tariff dispute will impact their growth plans long-term. With a historically tight labor market, an increase in the minimum wage registers as a slightly greater concern, with 26% of respondents indicating this would have a larger impact on business.

"The opportunities to reduce risk domestically exist but are complex," said Richard Cabrera, executive vice president and head of commercial & corporate banking at Umpqua. "Providing middle market businesses with sound counsel on where and how to expand internationally is a critical part of diversifying their supply chains and strengthening their market position. It can be advantageous for companies to pivot and look to other markets to grow."

Investment in disruptive tech is a priority
Leveraging new technology remains at the forefront of corporate strategies for middle market companies, with 61% of executives saying technology has already provided more opportunities to build and shape strong relationships with customers and vendors. Looking ahead, investments in new technology will be critical for 56% of companies in the next 12 months. More than 90% also plan to invest in technology to streamline operations, with 62% noting they are currently automating human work, showing they already expected this disruption, which mirrors actions seen in larger corporations.

At the same time, 24% of middle market leaders are looking to make investments in talent training/education that may help them execute against a digital transformation. Investments in talent training/education are expected to increase in the coming years as the survey found that nearly half (47%) of executives expect their workforce to experience the most disruption in the next 5-10 years.

Survey Methodology
The Umpqua Bank Middle Market Monitor, which surveyed 250 CEOs and CFOs in five West Coast states, is designed to provide insight into middle market businesses whose contribution to the economy is significant but less visible than other sectors. The online survey was conducted by Engine, a global research company, among a sample of CEOs and CFOs who work for a company with $10 to $500 million in annual revenue. All respondents were employed by a company located in California, Nevada, Washington, Oregon or Idaho. The survey was fielded from May 29 – June 19, 2019.

About Umpqua Bank
Umpqua Bank, headquartered in Roseburg, Ore., is a subsidiary of Umpqua Holdings Corporation, and has locations across Idaho, Washington, Oregon, California and Nevada. Umpqua Bank has been recognized for its innovative customer experience and banking strategy by national publications including The Wall Street Journal, The New York Times, BusinessWeek, Fast Company and CNBC. The company has been recognized for eight years in a row on FORTUNE magazine's list of the country's "100 Best Companies to Work For," and was recently named by The Portland Business Journal the Most Admired Financial Services Company in Oregon for the fourteenth consecutive year. In addition to its retail banking presence, Umpqua Bank also owns Financial Pacific Leasing, Inc., a nationally recognized commercial finance company that provides equipment leases to businesses. A subsidiary of Umpqua Holdings Corporation, Umpqua Investments, Inc., provides retail brokerage and investment advisory services in offices throughout Washington, Oregon, and California.