Report reveals size and shape of Australia’s $425 billion “mid market” sector

Australia’s mid-market sector accounts for just 1.3% of all business in Australia but produces a third of all business revenues and employs more than one third of all staff, according to a new report from financier GE Capital.

The report, which GE claims is the first examination of the mid-market in Australia, says the sector – defined as including companies between $10 million and $200 million in sales – contains about 25,000 businesses and makes an economic contribution to Australia of $426 billion.

But GE Capital says the sector faces two major challenges: difficulties accessing capital and good staff.

GE Capital Australia and New Zealand CEO Skander Malcolm said in a speech yesterday that the sector – which comprises publicly traded, privately-owned, family-owned, partnerships and sole proprietorships – is “often misunderstood and hard to define” despite its economic might and diversity.

“Out of a total of just over two million businesses in Australia, the mid-market segment represents just over 25,000 businesses or about 1.3% of all businesses, but it is responsible for just over one third of business revenues, more than one third of all employees (part-time and full-time) and nearly one fifth of all borrowings and deposits.”

“All up, the mid-market in Australia is estimated to contribute around $425 billion in value added. This is comprised of $250 billion in total wages paid to employees and over $174 billion in gross operating surplus.”

According to the GE report, turnover for mid-market businesses grew by 0.7% from 2004 to 2009, versus 2.6% growth for large businesses. And the number of mid-market businesses fell to 25,520 from 27,000 over the same period.

The report also found the largest concentration of mid-market businesses can be found in the wholesale sector, followed by manufacturing, retail and construction, although education provided the greatest growth from 2004 to 2009 at 34%, versus an 11.2% decline for mid-market businesses in financial and insurance services.

On challenges for the sector, Malcolm says funding remains a key problem for mid-sized firms, because they consider cashflow and working capital more critical for sustaining growth, they prefer retained earnings to loans or equity, the costs are higher, and their share price is more vulnerable to share price movements.

Malcolm adds that while chief financial officers of mid-sized businesses poll are more positive about revenue and hiring than CFOs of small firms, they are concerned about a looming skills shortage.

“Almost two-thirds of CFOs told us that they had difficulties filling vacancies in the previous six months and the major reasons related to the lack of specialised skills or lack of applicant skills and experience,” Malcolm says.

“For the mid-market this is a real issue and a potential growth-blocker.”

Earlier this month, a KPMG report tipped the retirement of baby boomers over the next decade to present labour challenges to SMEs over the next decade.

The report noted that smaller companies – those with up to $20 million in revenue – are more likely than smaller companies to be less reliant on offshore skills, with 12% tipping an increased reliance on skilled migration over the next five years, versus 33% for companies with revenue between $201 and $400 million.