KeyBank has unveiled its latest Middle Market Sentiment Report, offering a deep dive into the perspectives of over 750 senior executives from companies with annual revenues between $10 million and $1 billion. The report provides insights into economic trends, company outlooks, and strategic approaches to AI, technology, capital access and cybersecurity.
Middle market companies are navigating significant economic uncertainty, reminiscent of the challenges posed by the COVID-19 pandemic. This experience has taught them to focus on what they can control: streamlining processes, adopting smarter technology and fortifying their balance sheets. Despite ongoing economic pressures like tariffs, inflation and interest rates, these companies remain optimistic and resilient, and as importantly, continuing to invest in their businesses.
Key Middle Market Insights
- Optimism Rooted in Controllable Factors: Despite economic challenges, 72% of companies remain optimistic about their outlook over the next 12 months, down slightly from 76% in Q4 2024. Companies are focusing on factors within their control, like improved business efficiency (51%) and technology improvements (48%). While these are still the top drivers of optimism, it’s notable that both are down more than 10 points from a year ago, as leaders aim to realize the benefits from recent investments.
- Steady Economic Confidence: Despite policy and market uncertainties, 53% of executives view the broader U.S. economic outlook favorably for the next 12 months, matching our results from Q4/24, and sustaining the upward movement since early 2023. That said, top concerns looking forward include the potential impact from tariffs (32%) as the top focal point, along with inflation (31%), higher rates (30%) and higher labor costs (29%).
- Strategic Investments Drive Growth: As middle market leaders look to drive growth, three areas continue to stand out as focal points:
- AI and Technology: Nearly half (45%) plan to expand their AI and technology investments over the next 12 months, targeting improvements in operational efficiency (71%), cyber security (67%), decision-making (60%) and forecasting capabilities (59%). These investments will help them remain agile in uncertain times and support scalable growth.
- Operational Expansion: 37% of companies are expanding operations, which is likely driving the positive capital expenditures momentum we saw in Q1/25. These companies are embracing disruption as an opportunity to gain market share.
- Talent and Innovation: One-third (34%) are investing in workforce development and new product launches, signaling confidence in long-term market opportunities. Post-pandemic talent shortages have made it challenging to find skilled employees, so leaders are focusing on retaining and engaging their teams while boosting productivity.
- M&A Prospects Show Promise: More than half (63%) of middle market companies plan to engage in M&A activity by the end of 2025. This optimism extends into 2026, as companies anticipate a closer alignment of buyer and seller expectations, driven by clearer macroeconomic factors in the coming quarters.
- Strategic Capital Planning Emerges: While most companies (58%) intend to maintain current capital levels, 47% plan to raise equity and 42% to increase debt capacity as needed to support strategic plans. Preferred sources include private equity firms (56%), commercial lenders (53%) and venture capital firms (51%).
“We’re witnessing the resilience of middle market companies more than ever. Many are transforming policy uncertainty into competitive advantage by leaning into operational efficiency, focusing on productivity of their teams and strategically using pricing levers. Disruption always creates opportunity, and those middle market companies with strong balance sheets and operational agility are showing a willingness to act in this environment,” Ken Gavrity, president of Key Commercial Bank, said. “Despite policy shifts, tariff uncertainties, and mixed market signals, leaders are ready to navigate the turbulence and enhance their business operations, particularly their digital capabilities. Companies are investing in AI, automation and advanced analytics to boost efficiency and gain a competitive edge.”
