Middle-market remains the engine room of Australian economy

11 December 2019

Australia’s mid-market is one that is often overlooked, yet is a significant contributor to the economy. These are organisations with annual revenues above $10m and up to $1 billion.

Findings from the latest research by the fastest growing mid-tier professional services firm in Australia, BDO, show that mid-market businesses are a minority in number - comprising approximately 2.1% of all registered Australian tax-paying business - yet they contribute in excess of 20% of net corporate tax revenues for all business types, driving business growth and employment substantively.

Office Managing Partner for BDO Australia in Sydney, Grant Saxon, said there is new evidence that demonstrates the mid-market segment is growing, in size and relevance to the economy.

“The middle market punches significant above its weight, is achieving consistent growth and driving employment in Australian businesses,” Mr Saxon said.

Not all middle-market business are achieving growth. There are some having a difficult time in today’s economy, but we see those that are highly focussed on their people, technology and funding to drive growth as having the greatest success.

“Although small in number, the mid-market employs around 20% of the Australian workforce and produces just under a quarter of Australia’s total revenue.

“Mid-market businesses are unique in that they are large enough to invest and make a meaningful impact on the economy, yet small enough to be entrepreneurial and nimble, often with a clear market niche.  Whilst there is plenty of innovation occurring in the start-up community, innovation is commercialised in the mid-market.

“In a rapidly changing environment, middle market businesses have the advantage of being agile and have access to resources, but are not held back by the hierarchal structures you often see in some larger companies. This enables them to respond quickly and innovatively to a rapidly changing business environment. The size of these businesses can therefore become a competitive advantage. Middle market businesses generally have the ability to adapt and quickly respond to changing markets.

“Mid-size businesses are still entrepreneurial in the way they approach their strategy and its implementation. They look corporate, but they’re not hampered by layers of bureaucracy that can slow down the time it takes to make decisions.”

The report found that 82% of middle-market businesses are based on the East coast of Australia and they achieved profit margins of 13.7%.

Other key findings were:

  • Average revenues have grown by 10% over the last 5 years for all mid-market businesses
  • Average profitability (NPAT) in dollar terms has increased by 154% over the last 5 years
  • Average Profit Margins indicate a positive trend from 8.5% in 2014, up to 13.6% in 2018
  • As of 2018, middle-market businesses appear to have stimulated employment growth by 15% over the last 5 years
  • Wholesale and Manufacturing are the largest sector by volume, however Financial Services remains the most profitable middle-market industry in Australia

“For a long time now, the middle market has been overlooked when it comes to policies, business analysis and its contribution to the health of the Australian economy. Middle market businesses are often combined with the ‘small-to-medium’ segment – yet, they offer characteristics that make them distinctively unique,” Mr Saxon said.

“Middle-market businesses are unique in their make-up. Often starting as family-run, private businesses that grow organically – and as our client relationships tell us, they all have a different growth story and a number of distinct perspectives that nourish the Australian economy.

“BDO analysed a substantial portion of the financial results of middle-market businesses in Australia – by looking at 1,186 middle-market businesses, who have collectively contributed $440 billion to the Australian economy over their most recent financial year. We analyse their growth drivers and provide insights into key sectors shaping the middle-market.

“Our analysis shows middle-market futures are looking very bright. We are seeing strong evidence of growth over the last 5 years.”

The report is now available online at www.bdo.com.au/en-au/growthindex2019

BDO Growth Index Methodology:

  • Utilising data from Ibis World (Australia’s most comprehensive collection of Industry Market Research, Industry Risk Ratings, and Company Research) BDO analysed 5 years of financial data and demographic information of the largest organisations across Australia.
  • To focus our definition on the middle-market, we removed those organisations with annual revenues exceeding $1 billion and those with revenues below $10 million from the dataset.
  • In addition, we focused only on organisations where we could review financial statements available for a full 5-year period. This left us with a comprehensive sample of 1,186 organisations.