Delaying Business Investment

by Eric Dusch May/June 2014
Based on a fourth quarter 2013 survey conducted by the National Center for the Middle Market, GE Capital’s Eric Dusch tells us that investing is on the minds of CFOs, but they are worried that the economy and revenue growth may falter. But the greater danger, he says, may be delaying investment in the business and missing out on opportunities.

Middle-market companies — those with $10 million to $1 billion in revenue — are sending mixed signals about their growth prospects in 2014 and whether they have the confidence to finance new investment in their businesses. But for companies that do choose to finance growth this year, one thing is certain: They will have an unusually large and accommodating group of potential lenders and near ideal borrowing conditions.

Borrowing and investing in the business on a continual basis — through economic cycles — is what sets the most highly successful mid-market companies apart from the rest. Now, CFOs have a major opportunity to invest in growth, working capital and equipment financing.

Capital Investment

According to a fourth-quarter survey by the National Center for the Middle Market (NCMM), a partnership between The Ohio State University’s Fisher College of Business and GE Capital that tracks more than 2,000 chief executive officers and chief financial officers in private and public businesses, many mid-sized companies are poised to invest.

When executives were asked what they would do if given an additional dollar, 64% said they plan to invest rather than hold on to excess cash. This represents a level of interest in investment that hasn’t been seen since the second quarter of 2013. Twenty-four percent of CFOs also said they would invest an extra dollar in capital expenditures, such as facilities and equipment.

The NCMM survey also established that a tiny subset of mid-market companies grew during the recession and then doubled revenues during the following three years. Less than 1% of the 150,000 companies for which data was available fell into this category, which the NCMM calls “sustainers.”

Executives at these mid-size companies explained their success in surprisingly uniform terms. They said growth resulted from internal decisions, such as investing in innovation, changes in product/process technology and mergers and acquisitions (M&A). By comparison, companies with revenue declines, and even those that grew after the recession, tended to credit external events for their positive or negative performance.

Financing Priorities

Do other middle-market companies have the confidence to follow the “sustainers’” example? According to the survey by NCMM, it’s still unclear — but the construction industry is one bright spot. While revenue growth among all mid-size companies dropped slightly to 5% in the fourth quarter, revenues of mid-size construction companies increased to 7.8% — a three percentage point increase over the third quarter.

Looking ahead, construction companies continue to have a positive outlook on revenue growth. They foresee growth of 5.7% for the next 12 months and an increase of two percentage points from when they were asked the same question in Q3/13.

While confidence in the U.S. economy has waned a bit (62% of mid-size construction companies stated they are at least somewhat confident about the national economy, down from 67% in Q3/13), concerns about macro-economic events should not stop companies from investing in their own specific opportunities.

At the 2013 National Middle Market Summit, former Treasury Secretary Hank Paulson put it this way: The U.S. economy may continue to muddle along in 2014, but nevertheless “you need to keep investing in your business. You need to be proactive. The world is becoming more and more competitive and you need to continually reinvent your business.”

Attractive Rates and Terms

As noted, middle-market CFOs that pursue capital expenditures in 2014 will be pleased to find that it’s an excellent time to finance those ambitions. Not only are banks large and small on the mend and ready to lend, but this enormous liquidity is keeping interest rates low and terms generous. In fact, some lenders worry that too few mid-size companies will seek financing in 2014 to satisfy demand.

With so much liquidity, interest rates are likely to stay very low throughout 2014, barring some severe shock to the markets. This is good news for the construction industry, which after years of clutching purse strings tight, can now consider strategic investments, such as replacing equipment that’s past its prime.

Uncertainties Weigh Heavily

According to the survey results, executives at mid-market companies were clearly worried going into 2014 that economies and revenue growth would falter. But the greater danger may be delaying investment in business and missing out on opportunities. As the NCMM’s analysis of “sustainers” showed, exceptional revenue growth over time does not depend on the luck of being in some particular industry or some advantageous geography. It depends on executing on a vision consistently over time.

The financing for this investment has rarely been so abundant and offered on such generous terms to mid-market companies. The capital is available; executives with the vision and ability to execute should consider taking full advantage of this opportunity.

Eric Dusch ( is chief commercial officer—equipment at GE Capital, Corporate Finance, specializing in providing commercial loans and equipment leases to mid-size companies for growth, acquisitions, turnarounds and balance sheet optimization. For more information, please visit

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