Predictability Can Be More Valuable Than Rapid Growth

In middle market investing, rapid revenue growth attracts considerable attention, but growth alone does not necessarily make a business an attractive investment. A company with moderate, consistent growth, stable customer relationships, predictable margins and reliable cash flow may offer a more compelling investment opportunity than a faster-growing business with volatile earnings, significant capital requirements or uncertain customer retention.

Predictability allows investors to underwrite future performance with greater confidence, structure acquisition financing more prudently and develop realistic plans for creating additional value. While rapid growth can certainly justify premium valuations, the quality, sustainability and predictability of that growth can be just as important as its rate. In many middle-market acquisitions, a business that consistently delivers on its financial performance may ultimately offer more attractive risk-adjusted returns than one growing significantly faster.

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