Most think of America’s numerous small businesses or massive multinational corporations as the largest drivers of the U.S. economy. The often overlooked middle market (annual revenues between $50 million and $2.5 billion), however, accounts for approximately one third of the total private sector economy in terms of GDP and employment. (Source: U.S. Census Bureau)
In fact, American middle market companies represent the world’s fourth largest economy, accounting for $3.8 trillion in GDP during 2013. (Sources: CIA World Factbook; Bureau of Economic Analysis; OSU/GE Analysis)
+ Companies with revenues of $50M – $2.5B Source: National Center for the Middle Market Q4 2013 report.
While approximately 43 percent of American small businesses failed during the Great Recession of 2008 – 2010, the middle market was the resilient engine of the U.S. economy, with a survival rate of 82 percent. (Source: U.S. Census Bureau; D&B; ES202; Ohio State University/General Electric Analysis.)
BDCs like NexPoint Capital provide a vital function as a key source of capital to America’s middle market companies. In fact, Congress created BDCs in 1980 as a means to provide smaller U.S. businesses with access to capital, as well as to provide average investors with an opportunity to invest in private companies. With the growing demands of our aging population, combined with the mandates of the Affordable Care Act, the result will be significantly greater demand for capital among middle market healthcare companies as they adapt, grow and consolidate. Without access to the public capital markets, the cost of capital in the middle market is generally higher, which may provide more attractive yields to lenders, such as NexPoint Capital.
Source: Standard & Poor’s LCD Research, 2013. Returns are from January 2000 through June 2014.
****There are considerable differences in private middle market debt and large corporate public debt, including but not limited to, the size of the company issuing the debt, the credit quality of the company, loan covenants, liens and interest rates. Large corporate public debt is typically highly liquid and trades on an exchange. In certain cases, large corporations may have slightly higher financial resources and greater stability than smaller, less-developed middle market companies. Middle market companies may also be subject to higher default risk than larger, more stable public corporations.