Capital strategies shifting as Covid-19 impacts global economy

02 April 2020 Consulting.us

Over half of global executives are being forced to reconfigure their operations as Covid-19 pressures supply chains, revenue, and profitability – according to the 22nd annual EY Global Capital Confidence Barometer (CCB22). The survey polled 2,900 C-suite executives globally.  

Nearly three-quarters (73%) of respondents said they expect Covid-19 to have a severe impact on the global economy, with disrupted supply chains and declining consumption. The shutdown of activities in many regions has companies evaluating their supply chains, with 52% taking steps to change their current set-up.

Nearly half (49%) of businesses reported profit margins that were the same or lower than two years ago – before the current crisis even set in. Now, 95% are expecting further downward pressure on margins.

“There is no playbook for this situation and the C-Suite is reconfiguring and readjusting its response in real-time as events evolve rapidly. COVID-19 has created new vulnerabilities and unforeseen challenges. For most companies, the full impact on revenue and profitability across value chains are still highly uncertain,” said Steve Krouskos, EY Global vice chair, transaction advisory services.Capital strategies shifting as Covid-19 impacts global economyMost companies (72%) already had major transformation projects underway, which had been launched to meet revenue targets and profitability goals. When normality resumes, 43% of execs said they would focus on prioritizing changes in new investments in digital and technology.

Fifty-four percent of respondents said they expect a longer period of slow economic recovery extending into 2021 – following a “u”-shaped pattern. Meanwhile, 38% expect a “v”-shaped recovery, with a return to normal economic activity in the third quarter. A more pessimistic group of 8% project an “L”-shaped recovery, with a sustained recession until 2022.

Since most expect a recovery in the medium-term, 56% intend to actively pursue mergers and acquisitions in the next 12 months. Executives say they will focus more on target firms’ business resilience (38%), while many leaders (39%) are prepared to see valuations decline.

"As the post-financial crisis period shows, the M&A landscape often enables companies to make high-quality acquisitions in a recovering market,” Krouskos said.


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