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Greater Cleveland Middle-Market ForumJuly 24, 2012

in collaboration with

ChallengesGrowthChampions

Engine of Economy

Sustainable Job Growers

Resilient and Diverse

Community Pillars

Conclusions

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Middle Market

Indicator

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Large Corporations

Small Businesses ?

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Foundational, multi-sourced research

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Database Sources

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Comprehensive Survey

51%

C-Level Execs

2,028 C-level interviews (total)1,447 Middle Market decision maker interviews

16%

Principals(Partners/Owner)

24%

MD & EVP

9%

Company Officer

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Large Corporations

Small Businesses ?

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<$10M Annual Revenue

~6MBusinesses

35% Employment

Small Business ? Big Business

>$1B Annual Revenue

~2,000Businesses

31% Employment

? Annual Revenue

?Businesses

? Employment

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<$10M Annual Revenue

~6M Businesses

35% Employment

Small Business Middle Market Big Business

>$1B Annual Revenue

~2,000Businesses

31% Employment

$10M - <$1B Annual Revenue

195,000 Businesses

34%Employment

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The Middle Market is resilient.

In the face of extraordinary economic challenges and the recent recession, Middle Market businesses survived and grew.

82%

• Unprecedented credit crisis• Severe economic downturn • Sharply increasing commodity costs• Sweeping regulatory changes

Survivorship rate

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Small BusinessMiddle Market Big Business

97% 82% 57%

Survivorship Rate by Business Sector

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downsizing growing

- 2,000 jobs per business

big business

+20 jobs perbusiness

middle market

Jobs Contribution per Surviving Business (2007 – 2010)

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Community Pillars

Middle Market firms are foundations of their

communities, providing sustainable jobs and more

Small BusinessMiddle Market Big Business

71% 70%

16%

In business more than 20 years…

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“Supporting the communities we serve is probably the most important part of what we do.”

CFO, Wholesale Trade$500M and 2,150 employees

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Markets operated in

Middle Market

Big Business

43% 30% 27%

18% 22% 60%

Markets sourced from

Middle Market

Big Business

42% 35% 23%

20% 32% 49%

Local/Regional National Global

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The Middle Market is diverse in revenue,

geography, industry and structure

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11%

15% 46%46%

Operates more like smaller

businesses, despite revenues

$10-50M $50-100M $100M-$1B$100M-$1B

Consistent business practices;

project strong growth

Resemble multi-nationals

34% 15% 51%51%

80%

$9.3T revenue

195,00 firms

40.7 million employees 39%

9%9%

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The Middle Market is diverse and complex

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Middle Market DiversityOwnership Structure

Local/Regional National Global

FamilyOwned

Private

Public

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Geography

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Geography

Industry

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Middle Market Growth Champions

A unique subset we can learn from

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Middle Market Growth Champions

Distinguishing Characteristics

Sharper customer focus

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Middle Market Growth Champions

Distinguishing Characteristics

Broader geographic vision

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Middle Market Growth Champions

Distinguishing Characteristics

Invest in innovation

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Middle Market Growth Champions

Distinguishing Characteristics

Strong management

culture

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Middle Market Growth Champions

Distinguishing Characteristics

Superior talent management

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Where are we today?

Quarterly release of Middle Market Indicator (MMI)

MMI = forecasted revenue growth for the next 12 months

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• National Survey Of C-Level ExecutivesWhat…

• 1,002 financial decision makers in Private and Public Organizations with $10 million-<$1 billion in Gross RevenueWho…

• Field Period: June 8-19, 2012When…

• Self Administered Online SurveyHow…

• Past year growth• Anticipated growth• Confidence in economy• Challenges to growth• Detailed corporate profiling

Insight Areas

Research Methodology

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The Middle Market continues to be an engine of growth and job creation.

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Financial Performance – Total Middle Market

Middle Market Performance & ProjectionsPast Year Reported Gross Revenue Next 12 Month’s Revenue Outlook

Q1 6.9% 70% Firms Reported Growth 16% Firms Reported Decline 5.2% 69% Firms Reported Growth

9% Firms Reported Decline

Q2 6.1% 62% Firms Reported Growth 16% Firms Reported Decline 4.8% 61% Firms Expect Growth

6% Firms Expect Decline

The proportion of firms indicating growth in YOY revenues is lower in the 2nd Quarter

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• Growth is strongest among larger firms than smaller organizations.

• Those in the $50mm to $100mm segment are growing at a slower pace than their peers.

Base: Total Respondents

By Revenue Segment

$10M - <$50M $50M - <100M $100M – <$1B

2Q 1Q 2Q 1Q 2Q 1Q

(574) (558) (163) (186) (263) (258)

Mean Total growth 5.8% 6.0% 5.3% 6.5% 7.0% 8.3%

Past Year Financial Performance– Gross Revenue

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Past Year Financial Performance– Gross Revenue

Manufacturing, Retail Trade, and Healthcare lead the way while Construction remains a laggard.

By Industry

Services Manufact-uring

Wholesale Trade

Retail Trade

Construc-tion

Financial Services

Health-care Other

2Q 1Q 2Q 1Q 2Q 1Q 2Q 1Q 2Q 1Q 2Q 1Q 2Q 1Q 2Q 1QBase Total

Respondents (169) (157) (172) (176) (66) (66) (44) (47) (67) (63) (178) (168) (81) (53) (223) 272)

Mean Totalgrowth 8.5 7.2 7.3 9.8 5.1 6.9 4.5 7.9 6.5 1.6 7.5 7.4 5.1 9.3 6.1 5.6

Q2 Manufacturing, Financial Services and Services lead the way while Retail Trade has become the laggard.

Q1

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Previous Year Employment Growth – Total Middle Market

1.5% Total Growth

Increase

Stayed The Same

Decrease

Despite headwinds, the middle market continues to add jobs at the same rate as the 1st quarter.

2.0% Total Growth

2Q Total 1Q Total

Stayed The Same

Increase

Decrease

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Previous Year Employment Growth – Revenue Segment

Employment growth is stronger among midsized Middle Market Firms.

By Revenue Segment$10M - <$50M $50M - <100M $100M – <$1B

2Q 1Q 2Q 1Q 2Q 1QBase: Total Respondents (574) (558) (163) (186) (263) (258)

Total Growth (Mean) 1.7% 1.2% 2.5% 0.7% 2.2% 2.3%

Q2

Q1Employment growth was stronger among larger Middle Market Firms.

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Previous Year Employment Growth – Industries

2Q: Jobs grew most in:ServicesFin. ServicesManufacturingHealthcareConstruction

Total MM

2Q 1QBase: Total Respondents (1000) (1002)

Services +4.8% +2.0%

Manufacturing +2.6% +3.4%

Wholesale Trade +0.7% +0.5%

Retail Trade -0.4% +1.7%

Construction +1.1% -2.7%

Financial Services +3.6% +1.6%

Healthcare +1.9% +3.5%

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Employment Growth – Future Outlook 2Q Only

One third of middle market firms expect to add jobs over the next 12 months.

By Revenue Segment

$10M - <$50M $50M - <100M $100M – <$1B

Base: Total Respondents (574) (163) (263)Mean Total Growth 1.8 1.5 1.8

By Industry

Services Manufact-uring

Wholesale Trade

Retail Trade Construction Financial

Services Healthcare Other

Base: Total Respondents (169) (172) (66) (44) (67) (178) (81) (223)

Mean Total Growth 3.5 1.5 1.5 -0.1 2.9 2.0 2.2 2.2

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But going forward, there are headwinds…

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Confidence: By Geography

Confidence in both the Global and US economies is dramatically lower than in the 1st quarter.

Global Economy

US Economy

Local Economy

2Q 1Q 2Q 1Q 2Q 1QConfident

Somewhat confident

Somewhat not

confident

Not Confident

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Key Challenges – Total Middle Market

Highly/Very Challenging

2Q 1QThe cost of health care 90 92The cost of doing business 89 88Ability to maintain margins 85 86The uncertainty of how government actions will impact my business 85 81Ability to pass on increased commodity costs 79 75Ensuring compliance with regulation 75 69Ability to expand into new markets domestically 75 -Effectively managing through external change 73 76Ability to attract, train and retain talent 70 77Ability of your organization to innovate new products, services or processes 67 76Increased domestic competition 66 68Corporate tax issues 65 59

Healthcare costs and other margin pressures are most challenging to MM Leaders. Regulation and uncertainty of government actions are also key issues.

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Leaders are far more likely to hold an extra dollar as than in Q1.

Actions Likely with Additional $ - Total Middle Market

Hold Cash

Invest It

2Q Total

Hold Cash

Invest It

1Q Total

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The MMI – Middle Market Indicator

Goal: To provide an ongoing measure of the strength of the Middle Market that is predictive of growth, reliable in its reporting, and enhances NCMM’s thought-leadership reputation

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MMI Q1 = 5.2%MMI Q2 = 4.8%

MMI: Predicted Revenue Growth for the next 12 months

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The health of the Middle Market is vital to

overall U.S. prosperity

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National Center for the Middle Market

Research & Influence Corporate Outreach & Growth Accelerator

Student Learning & Experience

Become the nation’s thought leader in the Middle Market

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Research

Corporate Outreach

Student Activities

GrantsMiddle Market Indicator

White PaperExecutive Education

Growth Champion CEO Series

Middle Market Career FairFisher Invitational featuring a Middle Market Firm

www.middlemarketcenter.org

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www.middlemarketcenter.org

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in collaboration with

Greater Cleveland Middle-Market ForumJuly 24, 2012