Middle Market Business Leaders are Confident in Company Financial Performance, Reaching Highest Level in Two Years

Rhea-AI Summary

KeyBank's semi-annual Middle Market Sentiment Report reveals a surge in optimism among middle market businesses, with 78% reporting an excellent/very good outlook for the next 12 months. The survey of over 700 companies with $10M to $1B in annual revenue shows:

- 50% have a positive U.S. economic outlook
- 90% anticipate M&A involvement on the buy-side in the next two years
- 54% plan to implement AI in the next six months

Despite challenges like inflation (34%), higher labor costs (30%), and interest rates (29%), businesses are leveraging technology and automation for growth. However, 87% plan to tap alternative capital sources due to tight access. Cybersecurity remains a concern, with 32% experiencing issues in the past year.

Positive

• 78% of business owners report an excellent/very good outlook for their company in the next 12 months, up 5% from 2023
• 50% have an excellent/very good U.S. economic outlook for the next 12 months
• 90% of businesses anticipate M&A involvement on the buy-side in the next two years
• 54% plan to implement some form of AI over the next six months, up from 10% in Q4 2023
• 64% report improved efficiency in business operations, up 12% from last year

Negative

• 72% expect high interest rates to negatively impact their bottom line within the next six months
• 34% expect inflation to negatively impact business in the next 12 months
• 30% anticipate higher labor costs to negatively impact business in the next 12 months
• 87% are planning to tap alternative sources of capital within the next three years due to tight access
• 32% of middle market businesses have experienced cybersecurity or financial fraud issues in the past 12 months

News Market Reaction

+1.04%

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+1.04% News Effect

On the day this news was published, KEY gained 1.04%, reflecting a mild positive market reaction.

Data tracked by StockTitan Argus on the day of publication.

AI and automation contribute to optimism despite macroeconomics impacting bottom line

CLEVELAND, Sept. 26, 2024 /PRNewswire/ -- KeyBank (NYSE: KEY) announced the release of its semi-annual Middle Market Sentiment Report, which surveyed more than 700 business owners and executives of companies with $10 million to $1 billion in annual revenue, to gather their insights on the current economic and company outlook, challenges currently affecting their businesses, and their growth plans for the year ahead.

What's At Stake

Middle market businesses represent a large portion of private sector GDP and make up a critical yet often overlooked segment of our national economy. Despite setbacks, the results revealed middle market companies demonstrated remarkable resilience and growth amid this year's persistent market uncertainty. While concerns remain, the shift in confidence has led to a positive company and economic outlook.

Top Middle Market Insights

• Optimism jumps to its highest level in years: Middle market companies continue to demonstrate remarkable resilience and growth with 78% of business owners reporting an excellent/very good outlook for their company in the next 12 months, up 5% from 2023. Moreover, 50% have an excellent/very good U.S. economic outlook for the next 12 months, which can be attributed to improved efficiency in business operations (64%) – up 12% from last year – and improvements in technology (60%).
• Macroeconomics still make an impact: The top three factors expected to negatively impact business in the next 12 months include inflation (34%), higher labor costs (30%), and higher interest rates (29%). Likewise, 72% expect high interest rates to negatively impact their bottom line within the next six months.
• Business owners see M&A as growth accelerator: Middle market companies have their sights set on growth with 90% of businesses anticipating M&A involvement on the buy-side and 51% anticipating involvement on the sell-side in the next two years.
• Access to capital remains tight: Middle market companies are increasingly concerned about access to capital, as inflation, interest rates, and high borrowing costs persist. Given the conditions, 87% are planning to tap alternative sources within the next three years – including private equity firms (46%), private debt lenders (43%), and commercial lenders (41%).
• Sights are set on AI and automation for scale: Technology and automation have played a critical role in both improved outlook and expansion strategies across the middle market sector. The increasing trend to adopt AI across the market continues with 54% planning to implement some form of AI over the next six months – up from 10% from Q4 2023 – to grow their capabilities and improve processes across data analysis, customer and supply chain optimization, content marketing, fraud prevention, and cybersecurity infrastructure.
• Fraud continues to be a watch point across the sector: 32% of middle market businesses have experienced cybersecurity or financial fraud issues in the past 12 months. The emergence of cybercrimes has pushed the middle market to move quickly to protect their businesses against the top three cyber or fraud occurrences: phishing/email spoofing (48%); data corruption (44%); and identify theft (37%).

From Key Commercial Bank

• "The middle market has a long history of remaining resilient through economic cycles and KeyBank is committed to supporting these businesses. We recognize that their success is not only a testament to their ingenuity and perseverance but also a significant driver of broader economic stability and growth in our communities," said Ken Gavrity, President of Key Commercial Bank.
• "The growing dependence on digital infrastructure is a double-edged sword, creating operating efficiencies and better client experiences, but it also comes with increased potential for cybersecurity and fraud if not managed correctly," said Gavrity. "Our team works with many middle market companies to ensure that they are taking steps to deliberately manage the risks and to leverage the education and tools that are available."
• "A relationship strategy means we get to know your business, your strategy, your team, and how you make decisions. It's about more than offering capital, it's being a strategic advisor that helps you navigate growth, the economic cycles, and the complexities of running a business. We've been doing this for decades and built our whole business around that concept," Gavrity continued.

Methodology 
KeyBank surveyed 706 owners and executives of businesses with $10 million to $1 billion in annual revenue between May to June of 2024. KeyBank has conducted the Middle Market Sentiment research study since 2010.

About KeyCorp 
KeyCorp's roots trace back nearly 200 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation's largest bank-based financial services companies, with assets of approximately $187 billion at June 30, 2024. Key provides deposit, lending, cash management, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of approximately 1,000 branches and approximately 1,200 ATMs. Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name. For more information, visit https://www.key.com/. KeyBank Member FDIC. 

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SOURCE KeyBank

FAQ

What percentage of middle market businesses report a positive outlook for the next 12 months according to KeyBank's (KEY) report?

According to KeyBank's (KEY) Middle Market Sentiment Report, 78% of middle market businesses report an excellent or very good outlook for their company in the next 12 months.

How many middle market companies plan to implement AI in the next six months as per KeyBank's (KEY) survey?

KeyBank's (KEY) survey reveals that 54% of middle market companies plan to implement some form of AI over the next six months, up from 10% in Q4 2023.

What percentage of middle market businesses anticipate M&A involvement on the buy-side in the next two years according to KeyBank's (KEY) report?

According to KeyBank's (KEY) Middle Market Sentiment Report, 90% of middle market businesses anticipate M&A involvement on the buy-side in the next two years.

What are the top three factors expected to negatively impact middle market businesses in the next 12 months as per KeyBank's (KEY) survey?

KeyBank's (KEY) survey indicates that the top three factors expected to negatively impact middle market businesses in the next 12 months are inflation (34%), higher labor costs (30%), and higher interest rates (29%).