Too big to miss: the power of SA’s ‘missing middle’ segment
Mid-corporate businesses are reshaping the economy, says Nedbank

Economies throughout the world are confronted with uncertainty — from geopolitical dynamics and aggressive foreign economic policies to the volatile world of digitisation, tokenisation, and the ongoing disruption of artificial intelligence (AI).
However, any entrepreneur will agree that in both steady and unsteady waters, there are growth opportunities, and many agree that the lack of growth equals regression and puts any business at risk. Growth needs to be a key focus to keep the business and management at the forefront of new developments, new opportunities, and risk and reward. The same holds for mid-corporate businesses.
In some instances, the mid-corporate market segment is seen as the missing middle, positioned at the upper end of the commercial banking segment, yet just below the threshold for corporate and investment banking. But it’s worth defining the mid-corporate market first.
If size is used to define the client archetype, we can start with turnovers of about R800m per annum. But while size may offer a general indication, it is not the most meaningful measure, particularly at the upper end of the segment.
The risk of applying a ceiling on the mid-corporate market segment is that clients may find themselves being moved into a corporate banking operating and servicing model, while their needs and focus — often highly entrepreneurial with a large dependency on relationships — are inadequately addressed.
Some mid-corporate clients can have turnovers upwards of R10bn, hence the importance of not rigidly applying a turnover mechanism as the primary means of defining this market segment, especially on the upper end. The other factors that define the mid-corporate client are more significant.
Many agree that the lack of growth equals regression and puts any business at risk
A business with a turnover of this size has an established balance sheet and a proven track record.
An important defining characteristic is the ownership structure. Mid-corporate clients are mostly family-owned and -managed, privately owned with a key ultra-high-net-worth shareholder behind the business and/or in some instances institutional shareholding.
Entities in this market segment are usually unlisted, with the indication that once an entity is about to launch an IPO or is listed on the JSE, they form part of the corporate investment banking segment.
Lastly, entities that fit into this market segment foster an aspirational growth thesis where growth in many cases is driven through bolt-on acquisitions, with the implication that there is a need for tailored advisory services. The latter is pivotal since established balance sheets do not necessarily contain the right funding construct or transactional banking solutions to capitalise on growth opportunities in a sustainable way.
Based on this definition, it is estimated that the South African market comprises between 3,000 and 3,500 entities. Excluding the lower and upper quartiles, typical turnovers range from R1bn to R8bn. This positions the segment as a significant contributor to the South African economy.
One derivative from the definition of mid-corporate business is the inclination to grow, especially with the intent to use bolt-on acquisitions. These opportunities are particularly favourable during periods of market or industry consolidation or when macroeconomic factors affect entities that make them prime targets for larger entities to acquire.
The risk here, however, is that any acquisition targets may be on the market at lower prices, presenting attractive price-to-earnings ratios.
It is essential to ensure that any targets generate strong complementary cashflows and fit into the long-term strategy. This underscores the importance of partnering with the right bank that understands the mid-corporate market and can offer tailored advisory services. Beyond its role on both the buy and sell side, careful analysis should be done on a base case that is bankable.
In addition to helping avoid overpaying for an asset, this support can mitigate other key risks, including inconsistent earnings across sectors, over-indebted balance sheets, and unrealistic cash flow projections.
In an age of data and digitisation, organisations are challenged to invest in innovation. Those who embrace it, even including the use of AI, will find ways to boost organic growth. Innovation does not necessarily require or imply a digital foundation; the key is client-centricity and the ability to understand customer needs.
The use of data plays a pivotal role here — advanced data analytics can open new insights on customers, allowing for, among other benefits, a powerful application of the Boston Consulting Group Matrix.
Expanding into different market segments or geographies can be costly, with its own set of risks if not considered, researched and carefully navigated. The effective use of data and digitally enabled channels can serve as an effective mitigant of the risk new markets and geographies present. The option to plug into digital channels and platforms also allows a more cost-effective way to venture into uncharted territories.
Growth as an objective is a key supplement to keep an organisation focused, lean and abreast of the newest trends and technologies. Shareholders and management need to ensure that capital and retained earnings are used wisely to achieve sustainable growth. This is easier said than done. Another key ingredient is strategic partnerships, one of which should be a bank. The right bank will see itself as a long-term partner, offering sustained commitment and strategic insight.
• About the author: Herman de Kock is executive: Mid-Corporate Coverage at Nedbank Commercial Banking.
This article was sponsored by Nedbank Commercial Banking.
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