New sponsor-backed-company index lags public equities — but for good reason

  • Index measures changes in enterprise value of sponsor-backed companies
  • Index developed by Lincoln Int’l, two U. of Chicago professors
  • Designed for mid-market lenders, sponsors

The just-introduced Lincoln Middle Market Index, measuring changes in enterprise value of sponsor-backed companies, grew 23 percent over the 3 1/2 years ended Sept. 30.

The index’s ups and downs largely tracked those of public equity benchmarks, and with less volatility. The index ultimately trailed the Russell 2000 (27 percent) and the S&P 500 (35 percent) over the period.

But it’s not an apples-to-apples comparison. The Lincoln MMI measures changes in enterprise value for a collection of some 350 companies based in the United States generating EBITDA of less than $100 million. The Russell 2000 and the S&P 500 measure changes in equity value, which takes into account the bolstering effect of borrowing (in up markets).

In fact, were it based on equity values the Lincoln MMI likely would have grown substantially faster for the period observed, said Ron Kahn, managing director of Chicago-based investment bank Lincoln International and co-head of both the firm’s debt advisory and valuations and opinions groups. So why the focus on enterprise value?

According to Kahn, Lincoln International and its collaborators on the index, Steven Kaplan and Michael Minnis, professors at the University of Chicago Booth School of Business, decided that changes in enterprise values, more immune to leverage than equity values, provide a better proxy of the value that companies create under sponsor ownership.

The index, updated quarterly, was designed for mid-market lenders, sponsors and others to benchmark the value creation in their portfolios against the broader market. For example, an estimated 13 percentage points of the 23 percent growth in the index over the recent 3 1/2-year period resulted from earnings growth. The other 10 percentage points came from multiple expansion.

Lincoln International’s valuations and opinions group produces more than 5,000 valuation estimates per year for some 75 clients and 100 funds, many of them publicly traded business development companies, private credit funds and the banks that provide leverage to them. It’s from that work that Lincoln International gathered the enterprise valuations used in the Lincoln MMI.

The companies in the index fall into a few main categories, including healthcare, business services, technology, energy and consumer. The median company in the index has an enterprise value of $27 million. For now the firm does not plan to release industry or size breakdowns to the public but may produce them for clients.

Founded in 1996, Lincoln International offers a variety of services, including investment banking, debt advisory, valuations, restructuring and joint-venture advisory, out of 19 offices in 14 countries. It opened its most recent office in San Francisco in September, led by William Bowmer, co-head of the firm’s TMT group.

Action Item: Learn more about the Lincoln MMI at

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