- The middle market is a critical thread in Australia’s economic tapestry
- Hindrances, old and new, loom as a menace to growth
- Epsilon is dedicated to creating solutions to these challenges
Here at Epsilon, we just can’t help it – we simply love the middle market! The Australian middle market is a large, diverse and dynamic set of operating businesses.
It’s a fascinating reflection of human endeavour across all facets of our economy, encompassing the production of goods and the provision of services to all aspects of our daily lives – from the food we eat for breakfast, to the clothes we wear, the house we live in, the entertainment we consume and the wellbeing of our families. Whilst the middle market enjoys an operating environment in Australia that is the envy of many other nations, there are, however, some looming and critical challenges to this foundation stone of our prosperity.
Middle market companies form a critical part of the Australian economy. According to the ABS (2019), there are about 2,300 businesses that fit within the large company category (more than 200 employees). By contrast , there are close to 35,000 unique businesses within the Australian middle market (companies with annual revenues over $10 million but less than 200 employees). 35,000! It’s a big number, and unsurprisingly the middle market is a vital employer in our economy, providing over 3 million Australians with jobs. Additionally, the mid-market is where much of the M&A action is in Australia with medium sized companies accounting for around 80% of all M&A transactions. Mid is indeed beautiful.
But being mid-sized isn’t always an advantage. In surveys of middle market companies, the greatest barrier to growth and innovation nominated by business owners is a lack of access to capital. Conversely, large companies place access to capital as the least of their concerns when it comes to building their revenue and earnings. What a contrast ! When it comes to attracting funding, the big end of town do this relatively easy with many having open access to the listed markets, and Banks (both local and offshore) eager to lend. Funding for a middle market business, however, is largely confined to borrowing from local Banks and this is becoming increasingly difficult for business owners. There are a number of reasons for this trend, but the predominant driver is the regulatory pressures on Banks post the GFC which encourages them to allocate more capital to ‘lower risk’ lending (such as residential mortgages, for example). Add to this funding problem a generation of business owners that are getting older, and face real succession issues. 70% of middle market business owners are currently planning to sell or pass on their business, and the capital to facilitate that transition, as well as to grow the business under new owners, has never been harder to access. This is what you might call a conundrum !
At Epsilon we have observed these trends play out first hand in middle market Australia over the last decade. Nonetheless, we continue to be enthusiastic and excited by this group of growing companies who remain resilient, innovative, and determined. While access to capital is the biggest impediment to growth for 35,000 Australian middle sized companies, we see this as an enormous opportunity. At Epsilon we are genuinely driven as a team by the vision and responsibility of being part of the future funding solution for middle market Australia - because we know the middle market is beautiful, and that it counts!