BCG: More than half of US companies under financial or operational stress
More than 60% of US companies are under financial or operational stress, according to a recent report from Boston Consulting Group (BCG). The firm’s turnaround and restructuring division – BCG Turn – analyzed 721 US public companies (and 25,000 globally) on over 20 financial, market, and qualitative performance indicators.
BCG’s research confirms that economic distress from the pandemic is deeply entrenched and shows little sign of evaporating soon.
The 60% of US firms under stress (underperforming in their industry or under internal/external pressure) as of the end of Q2 2020 represented a 49% year-over-year (YoY) increase. Fourteen percent were in distress – meaning they are struggling to meet their financial obligations and/or require significant restructuring. The proportion of distressed firms saw a YoY increase of 43%.
Though the picture in the US is bleak, things are worse in Central Europe, the Middle East, and Africa, where the number of companies in distress has increased by 83%.
Some industries have, of course, been hit harder than others, while some industries have thrived because of the pandemic. Travel and tourism (61% stressed, 16% distressed) and retail (67% stressed, 18% distressed) have suffered in particular.
The oil & gas sector has seen a notably high bankruptcy rate amid lower prices and demand, with a 57% stress rate and a 10% distress rate.
Meanwhile, healthcare, biopharma, technology, and transportation and logistics have been boosted by pandemic related demand and investment. The number of distressed companies in biopharma, for example, has decreased dramatically – dropping from 42% in 2019 to 25% in 2020.
“BCG TURN Radar confirms the impression created by stories of business failures and layoffs – the Covid-19 pandemic is causing deep, structural changes that are likely to be long-lasting," said Luke Pototschnik, head of BCG’s transformation practice and BCG Turn in North America.
Some subsectors are performing well even within distressed industries due to the contours of pandemic impacts. Lockdowns, stay-home-orders, and changing consumer behaviors have made restaurants among the most devastated part of the retail industry, with 52% in distress. Grocery stores, on the other hand, have fared well, with more than 43% in stable territory. Shipping companies have been boosted by e-commerce, with 32% stable, while 47% of logistics firms are stressed because of an overall slowdown in global trade.
BCG expects bankruptcy rates will continue to rise in 2021. Larger companies, however, will be better equipped to weather the ongoing economic trouble, even within distressed industries. “There are reasons why this makes sense," Pototschnik said. "Large companies typically have healthier balance sheets. They have greater access to capital markets. They have more diversified product lines and portfolios. And they are less vulnerable than smaller companies to private-equity and activist intervention.”
