Middle Market Executives Expect Financial Crisis to Reach Bottom in 2009

NEW YORK--(BUSINESS WIRE)--Reflecting cautious optimism, four out of five middle market executives anticipate that the financial crisis will bottom out in 2009, according to an exclusive study released today by CIT Group Inc. (NYSE: CIT), a leading provider of financing and advisory services to the middle market. The research report, “U.S. Middle Market Outlook 2009: Navigating the Credit Crunch,” shows, among other things, that a majority of middle market executives expect stable or growing revenues as they actively focus on operating efficiencies, managing their cash flow and spending more effectively. This study is the first in a series of four middle market studies to be released this year in association with Forbes Insights.

“In the face of one of the most challenging financial crises in generations, middle market executives remain cautiously optimistic about the market’s recovery as well as their own prospects over the next 12 months,” said Jim Hudak, Co-Head of Corporate Finance at CIT. “These findings are in line with what we are seeing ourselves. Despite the current economic crisis, our middle market clients continue to demonstrate their resiliency and ability to adapt as they look for the market to improve.”

The study, based on the responses of 150 senior-level financial decision makers at U.S. middle market companies (those with annual revenues between $25 million and $1 billion), highlights how these executives are managing the current economic crisis and also reveals their outlook for 2009. The results are in stark contrast to a similar examination of the middle market sponsored by CIT in mid-2007. During that period of positive economic strength, executives had greater expectations for revenue growth and were taking more aggressive steps to invest in the talent and infrastructure necessary to support future expansion.

Peter Connolly, Co-Head of Corporate Finance at CIT, said, “Middle market companies have clearly braced themselves to get through these tough times. They are instituting operational efficiencies, watching their cash flow and buttoning up their spending and as they wait for the market to turn around. When recovery does occur, this should help them return to growth.”

Middle market companies, a key component of the U.S. economy, account for more than $6 trillion in sales and employ almost 32 million Americans (2002 U.S. Census).

Key findings of the study include:

• Cautious Optimism. Four out of five respondents indicated that the financial crisis will bottom out this year with 28% predicting it will happen within 6 months and 52% saying it will happen in 6 to 12 months.
• Resiliency in the Face of Adversity.
  • Revenue Growth. A majority of middle market executives expect stable (23%) or growing (41%) revenues. Of those who expect their revenues to grow, 73% said they would achieve/support this growth by improving their operating efficiencies as they manage their cash flow and spending more effectively. Thirty-six percent said their revenues would decline. In 2007, approximately two-thirds of executives believed that their revenues would grow over the next 12 months.
  • Keeping Cash Close. Executives indicated that they remained focused on maintaining day-to-day operations as they delay longer-term plans. Respondents indicated that cash-flow financing was the number one form of financing that they will use in the next 12 months, and 31% said working capital needs was the number one item for which they might use any financing, while traditionally longer-term investments, such as plant and equipment (21%) and new technology (16%), seem to be put on hold. By comparison, in 2007, new technology topped the list, being picked by more than a third of respondents, and working capital was fifth.
  • Managing Expenses. In an effort to contain costs and work through the current economic crisis, more than two-thirds of executives surveyed indicated that they would cut their capital expenditures (36%) or keep them at the same level as last year (36%), while just 28% planned to spend more. Regarding cost-cutting initiatives, more than half anticipate reducing staff levels, 49% will invest less in new plants and equipment, and 38% intend to cut back on R&D. In contrast, in 2007, a little more than half of those surveyed indicated they would increase their capital expenditures as they focused on growing staff levels (47%) and investing in new technology (36%).
• Not Immune to Current Economic Crisis. When asked how the current crisis has affected their business, nearly two-thirds said it has had a significant or moderate impact, while one-third said it had a slight impact or no impact at all.
• Market Conditions Portend Financing Challenges. Should economic conditions worsen, executives expressed concern that their access to financing will become more difficult. Forty percent indicated that changes in the availability of credit/financing would have a negative impact on their business; more than a quarter (27%) said their ability to secure financing will worsen in the next year.

NOTE TO EDITORS:

Complimentary copies of “U.S. Middle Market Outlook 2009: Navigating the Credit Crunch,” as well as podcasts related to the study featuring Peter Connolly and Jim Hudak, Co-Heads of Corporate Finance at CIT, can be downloaded at http://middlemarket.cit.com.

About the Report

“U.S. Middle Market Outlook 2009: Navigating the Credit Crunch” is the first in a series of four in-depth studies on the middle market being produced by Forbes Insights in association with CIT. Forbes Insights surveyed 150 executives at U.S. middle market companies in December 2008 and January 2009. Approximately two-thirds (67%) of respondents were C-suite executives at companies with revenues between $25 million and $1 billion. All those surveyed had functional responsibility for finance, strategy and business development, or general management. The research spanned numerous industries including, among others, energy, healthcare, IT, real estate, retail, manufacturing and consumer goods. The 2007 middle market study was conducted for CIT by the Economist Intelligence Unit; all references to that report _©2007 The Economist Intelligence Unit Ltd.

About Forbes Insights

Forbes Insights is the custom research practice of Forbes Media, publisher of Forbes Magazine and Forbes.com (www.forbes.com), whose combined media properties reach nearly 50 million business decision makers worldwide on a monthly basis. Taking advantage of a proprietary database of senior-level executives in the Forbes community, Forbes Insights’ research covers a wide range of vital business issues such as talent management, corporate social responsibility, financial benchmarking, risk and regulation, and doing business in emerging markets.

About CIT

CIT (NYSE: CIT) is a bank holding company with more than $60 billion in finance and leasing assets that provides financial products and advisory services to small and middle market businesses. Operating in more than 50 countries across 30 industries, CIT provides an unparalleled combination of relationship, intellectual and financial capital to its customers worldwide. CIT maintains leadership positions in aerospace, equipment and rail leasing, small business and middle market lending, vendor financing and factoring. Founded in 1908 and headquartered in New York, CIT is a member of the S&P 500 and Fortune 500. www.cit.com