3 minute read 10 Apr 2020
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What’s now, what’s next and what lies beyond for Eurozone companies

By Andrea Guerzoni

EY Global Vice Chair – Strategy and Transactions

Advising Boards and CEOs on transformational deals from strategy through to execution. Leader of the EY Strategy and Transactions service line. Innovator and team player.

3 minute read 10 Apr 2020

Eurozone companies focus on well-being of workers and working capital in the current COVID-19 crisis while positioning for longer-term value.

It is sometimes difficult to consider the world before COVID-19. Looking back at EY’s prior Capital Confidence Barometer, just six months ago, executives in the Eurozone were facing a range of geopolitical, regulatory, trade and tariff challenges. Many, however, were choosing a proactive response. The need to transform was seen as outweighing the risks of uncertainty.

At the start of the year there were some encouraging indicators across the Eurozone. But the world today is entirely different. Economies have been put into hibernation to enable health services to cope. It is hard to imagine ever feeling more globally connected by a single crisis and determined to get through yet simultaneously feeling so helpless and isolated.

It is a similar experience for executives. Companies are now having to deal with unprecedented challenges in the midst of an ongoing human tragedy. Their emphasis is on their employees, first and foremost. They are also monitoring liquidity and working capital, as well as re-evaluating operating models. They are in survival mode.

But they are also acting. They are adapting their supply chains, accelerating automation and digital transformation. They are working in different ways as they navigate the present situation.

Dealing with this “new now” is rightly the main focus. There is much we do not yet know. What we do know is that this too shall pass. There are many companies in Europe that are centuries old. They have been through crisis and emerged stronger. Today’s executives are also considering what they have to do next.

This is where it is useful to consider what was happening before the crisis exploded. More than three-quarters (79%) of companies were undergoing a significant business and technology transformation program.

These plans will be rebooted with extra emphasis. Companies will refocus their efforts to improve margins and cashflow to strengthen their resilience.

Executives in the Eurozone were also conducting more frequent strategic and portfolio reviews in an environment that was changing at an ever-faster pace.

They were also acting on these reviews. They were looking to invest for future growth.

This will stand them in good stead as they restart operations and look at what lies beyond.

It is the steps that executives take as the crisis dissipates that will determine long-term value creation and the ability to withstand future shocks.

While the survey was in the field, executives became increasingly pessimistic about economic growth. What did not decline in the same way was their desire to look to deal making to boost future opportunities. This may no longer be in the next 12 months. It may be longer before executives can activate these plans. However, as with every action in this crisis, timing is critical. It depends on when the economy is restarted, but it will surely happen.

Lessons learned from the 2008–12 M&A downturn show that it was an opportunity to make acquisitions of high-quality assets that would have fueled faster growth in a recovering market.

So, for now, executives must focus on surviving this crisis, be centered on their employees and other stakeholders, and provide a foundation for what comes after. Their recovery activity will need to be focused, fast and effective. When the time is right they need to act with purpose. Companies who have already been reimagining their ecosystems and who navigate the COVID-19 crisis will be best placed for what comes beyond.

Summary

The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

About this article

By Andrea Guerzoni

EY Global Vice Chair – Strategy and Transactions

Advising Boards and CEOs on transformational deals from strategy through to execution. Leader of the EY Strategy and Transactions service line. Innovator and team player.