Why Arizona’s lagging middle market hampers job growth Article originally posted on Phoenix Business Journal on February 2, 2016 Arizona is gaining traction in one of the most crucial business categories to boost the state’s gross domestic product: middle market enterprises — but not to the extent needed. Middle market companies generated 92 percent of the job growth since the recession. These are companies with revenues from $10 million to $1 billion annually. There are nearly 2,100 of them based in Arizona, as compared to only 37 large enterprise headquarters with revenues of $1 billion or more, according to a study released by American Express Global Corporate Payments. Not all experts agree with the Amex findings. “Our sources have prospect databases with far more than 2,100 firms,” said Dennis Cornelius, co-founder and managing partner of CKS Securities, which has been doing deals with middle market companies for 15 years. “This is a key part of the Arizona market interesting venture capital.” Cornelius said he is seeing a number of middle market companies growing with private equity investments. “There may have been a trend in the past that the companies weren’t growing into middle market revenue, but that’s changing,” he said. Cornelius added that CKS closed $38 million in deals last month for middle market companies. Regardless, the number of middle market companies headquartered in Arizona is small compared to more than 400,000 total businesses located in the state, according to Dun & Bradstreet. The nearly 2,100 middle market companies account for less than 1 percent of all businesses in Arizona. Companies with revenues under $10 million make up more than 99 percent of Arizona businesses. However, Arizona’s middle market businesses tend to be more mature than the national average, said Julie Weeks, American Express Research Advisor and author of the AmEx Middle Market Power Index for 2016. Across the state, 42 percent of middle market businesses have been around from 10 to 29 years and 27 percent are between 30 and 49 years old. That compares with 34 percent and 24 percent nationally. “It takes an Arizona company longer to grow into the middle market sector than other states,” Weeks said. “Enterprise age does not necessarily translate into revenue growth. In Arizona, it appears most companies move into the middle market in the second generation.” That slower growth drags down job growth in the higher-paying middle market economy, she said. Cornelius said that trend is moving faster now. “It may have been true that companies took longer to hit middle market,” he said. “That’s not the trend now. We have a fair number of startups that are moving into that volume. That’s why they are attracting venture capital dollars.” That’s not all a growing middle market company attracts. Weeks also said that there is a lot of transition among middle market companies. “Once an enterprise starts approaching $10 million in revenue, it pops up on radar of larger companies looking to grow through mergers or acquisitions,” she said. “Once acquired or becoming a division of a larger company, it disappears from the middle market screen.” Able Aerospace, Mesa, and Four Peaks Brewery, Tempe, are two recent Arizona examples of middle market companies that were acquired by larger corporations. Able was acquired by Textron Aviation and Four Peaks by Anheuser-Busch In Bev.