Growing middle-market segment a driver of Australia's economy
Average revenues in Australia’s middle-market business segment have increased by as much as 10% in the last half a decade, according to new analysis from accounting and advisory firm BDO. The burgeoning segment has consolidated its position as the engine room of Australia’s labour market and economy.
The analysis is based on data collected by market research firm IbisWorld, which defines the middle-market segment as businesses that generate annual revenues of anywhere between $10 million and $1 billion. Using this bandwidth, while the mid-market segment makes up only 2% of Australian businesses, it accounts for more than 20% of Australia’s tax revenue.
Despite being such a central player in Australia’s economy, the sector typically falls under the radar, with much of the media and political attention going to multinationals and home-grown corporates. In its report, BDO takes a closer look at the sector, providing insights on what businesses in the middle-market look like and how they’ve been performing in recent years.
Starting with an overview of the sector, the study finds that more than 80% of middle-market businesses in Australia are situated on the East Coast. An average middle-market firm in Australia makes more than $370 million in revenues each year, which translates into approximately $1.2 million per employee.
The largest number of mid-market businesses are firms that generate between $100 million to $200 million in revenues, at 42% of the total. The second largest share of middle-market firms is held by those earning between $500 million and $750 million, at 31%, with 19% of firms earning revenues in excess of that.
In terms of business type, half of all middle-market organisations are proprietary companies. Other expansive business types include public companies and government bodies, while few fall into the categories of co-operatives, partnerships, associations and trusts.
From a sector perspective, most are engaged in wholesale or manufacturing. Then follow financial services, insurance services, retail trade and professional services.
On the whole BDO reports that Australian mid-market businesses are doing considerably well, enjoying a 10% increase in revenues over the last five years, and a 154% increase in net profits over the same period. On average, profit margins stand at nearly 14%, meaning that the segment is financially more lucrative than many of its peers.
The segment appears to be moving in line with market trends as well. Recent reports have suggested that businesses of all sizes in Australia are beginning to embrace the digital paradigm. Given the significant share of financial services and professional services companies in the middle-market, the segment is likely to be a prominent driver of this trend.
Growth
With growth and differentiation in the marketplace a dominant strategic theme on the table of mid-sized businesses, BDO’s experts outline a number of areas for consideration: talent, technology and capital.
Jenine Waters, a Partner for People Advisory at BDO: “As organisations grow, their people can become their greatest strength – or their biggest inhibitor to success.” Kamal Prasad, a Partner in the firm’s Technology Advisory practice added, “Technology can create efficiencies by creating leaner organisations, produce effective cost management and maximise return on investment.”
On the importance of capital, BDO Partner in Charge for Advisory in the Corporate Finance domain Stephen Seear added, “In particular, middle- market companies can continue their growth trajectory through investment from private equity – allowing them to invest in various types of growth such as geographical expansion or vertical integration.”
