With a recovery taking longer than expected to arrive, companies are focusing on bottom-line improvements.
Our seventh Global Capital Confidence Barometer finds that leading companies see little immediate prospect of a recovery for the global economy. While the situation has stabilized in some markets, most executives expect this downturn to endure for at least a year, while many economists think it could persist for three years or more.
The Eurozone crisis and slowing growth in emerging markets, such as China and India, have dampened global economic confidence and expectations around corporate earnings. This has led to significantly reduced organic and inorganic growth aspirations. The focus on growth in the near term will be mainly organic as the appetite for M&A has declined.
Despite strong fundamentals for deals, including rising cash stock piles and adequate credit, there is a lesser appetite for acquisitions and divestments compared with any previous edition of our barometer. Contributing to the lack of confidence around M&A activity is the sentiment by many executives that acquisition targets are over-priced.
What’s next? Companies are refocusing on the basics: cost reduction, performance improvement, capital allocation, and targeted organic and inorganic growth initiatives dominate the boardroom agenda. Those who execute in a disciplined way will be best positioned when economic confidence returns.
| || || Pip McCrostie, Global Vice Chair, Transaction Advisory Services |
- 78% think the global economy shows no signs of improvement
- 66% expect the downturn to persist for more than one year
- 44% view credit availability as stable; declining view up modestly
- Appetite for M&A falls to 25% from 31% in April
- Intention to divest down to 19% from 31% in April