Three ways private companies are battling COVID-19

Private companies are responding with urgency now, preparing for what’s next and thinking beyond the current crisis.

Although hundreds of millions of people remain in lockdown, production plants lie idle and planes are grounded in abandoned airports, the latest EY Global Capital Confidence Barometer (pdf) — which includes 1,145 private company C-suite responses — finds that companies are already starting to consider the COVID-19 crisis in the long term as well as the short term: responding with urgency now, preparing for next and also thinking beyond.

Now

Private company leaders have been laser-focused on navigating the immediate impact that COVID-19 has had on liquidity, supply chains, revenue and profitability. In response, most (87%) are already actively changing their supply chains (46%), or at least clearly understand that they must urgently re-evaluate them (41%). COVID-19 has also taken its toll on global equity markets and led to extreme market volatility. The majority of the respondents (57%) are also concerned that accessing capital will become a serious challenge, and are tapping into various stimulus plans, funding alternatives and cash-saving plans.

Next

COVID-19 has put many organizations on the back foot, but private companies need to plan proactively and anticipate what’s next.

The good news is that more than two thirds of (71%) are already undergoing a transformation program. Such programs may have been paused or slowed due to the current situation, but they will restart — with added emphasis and urgency. Looking forward, three-quarters of private companies will conduct more regular strategy and portfolio reviews and there are already many good examples of private companies pivoting strategically to respond in a very agile way.

One example: a Chinese electric car company answered its government’s directive to produce more masks not as a compliance exercise but as a business opportunity. The company immediately created a new production line and completed both the R&D and production of a mask-making machine in just seven days, thereby becoming one of the world’s largest producers of masks.

Once a greater degree of “normality” has returned, further private company executives will look beyond the downturn and make faster moves to reimagine, reshape and reinvent their businesses to help fuel the recovery and create long-term value for all their stakeholders.

Beyond

Private companies that quickly reboot their pre-crisis strategies will be best-positioned post-COVID-19, but this will demand even better use of data to understand the new market environment and evolving competitive landscape, as well as rebalancing asset portfolios more frequently through acquisitions and disposals.

In terms of deal intentions, the private company respondents remain resolute in their pre-crisis plans. While most expect the COVID-19 outbreak to have a severe impact on the global economy, almost half (48%) nevertheless intend actively pursuing M&A over the next 12 months — a higher figure than this time last year.

The fact that M&A intentions remain elevated in the midst of crisis is no surprise: transformation through transactions is now an established chapter in the CEO playbook. Data showed that the post-financial-crisis downturn in 2008–10 was an opportunity to make bold transformational strategic moves, including acquisitions of high-quality assets to fuel faster growth in the upturn.

To achieve such M&A ambitions, however, private company leaders will need to be creative and flexible in funding their transactions. Private equity (62%), followed by patient capital (52%) and IPO (52%) are their preferred sources of finance, but those companies planning to go public  should be ready to complete their IPO at short notice, taking advantage of narrower transaction windows. They should also think about digital options for conducting remote roadshows, adjust to more cautious IPO valuations as investors re-appraise their overall asset allocation and consider alternative funding mechanisms as required.

Private company executives also told us that in order to unlock their ambition  and navigate disruption, they need to dedicate more management time to future planning. With so much currently on hold, this is perhaps their best opportunity to dedicate that time, particularly to activating their transformation plans, which for many will now be more important than ever.