4 minute read 24 Apr 2020
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UK execs respond to crisis now and plan ahead for business resilience

By

Steve Ivermee

EY UK & Ireland Transaction Advisory Services Leader

Transactions leader working with multi-disciplinary teams to advise and support clients on the whole transaction life cycle from strategy to execution. Budding racing driver and opera lover.

4 minute read 24 Apr 2020

UK boardrooms are thinking about life beyond the immediate crisis and what happens next, including M&A for transformative deals.

We’re living through an unprecedented time in our history. Normal life has been suspended amid an ongoing human tragedy. Almost overnight, our society has had to come to terms with immense change, uncertainty and new and unforeseen challenges.

The utmost priority for executives has been the welfare of their workforce, customers and health of their supply chain. This is happening alongside the pressing need to engage stakeholders and address the immediate business continuity and liquidity challenges posed by the impact of COVID-19.

We can see this response in the latest edition of the EY Global Capital Confidence Barometer (pdf), conducted in February and March, when UK companies moved from feeling the first impacts on some overseas operations and supply chains to a complete domestic lockdown. But, as the survey also highlights, boardrooms are also thinking about life beyond the immediate crisis and what happens next.

New challenges

The 22nd edition of the EY Global Capital Confidence Barometer (CCB)  survey began on 4 February and ran until 26 March 2020. From 19 February, we added supplementary questions on corporate responses to the COVID-19 outbreak. In this latter part of the survey, almost three-quarters of global executives said that they expected the COVID-19 outbreak to have a severe impact on the global economy, and about 40% expected a severe impact on their own company’s margins.

Indeed, there can hardly be a company that hasn’t been affected in some way by COVID-19, from those contending with a rapid increase in demand, to businesses dealing with a complete shutdown of all their operations. Business continuity is an ongoing and evolving challenge. In this latest CCB survey, almost all executives at a global and UK level indicated that they were taking steps to change or reevaluate their supply chains in response to COVID-19. Most UK and global respondents are also accelerating automation and digital transformation to adapt their operations to the operational challenges posed by the impact of the virus.

New thinking

It’s also noticeable in the last few weeks how companies are starting to look further forward, beyond the immediate challenge of day-to-day operations. They are starting to think about how they can restart operations, how their business will emerge from this crisis, and the role they can play in the recovery of the economy and society.

We are certainly seeing a renewed focus on purpose and long-term value. This crisis has highlighted the organizations and individuals that play a vital role in our society. It’s also underlined how essential it is that companies understand their purpose and apply this to all their actions.

Having made such huge changes to working and operating practices, it would also be astonishing if we all returned to our old ways of working. We have learned so much in this last month – and will no doubt learn more in the weeks ahead. I expect to see the emphasis on the health and well-being of workforces continue. We may also see productivity increase rapidly in many areas as we keep many of the good practices we’ve adopted in areas like automation and remote working when life returns to “normal.”

Speed of automation

77%

of global respondents have re-evaluated or taken steps to change their speed of automation in response to COVID-19.

New deals?

Companies have also continued to look forward and think about deals. Over half of UK (55%) and global (56%) respondents in the latter half of the EY survey (after 19 February) said that they expected to transact in the next 12 months. To some extent, these numbers reflect the survey population. Half of UK respondents have annual revenues of $3b and above, companies that are arguably more likely to have the balance sheet strength to consolidate and make transformative deals in the year ahead.

But I also think that the focus on transformation reflects the way that the COVID-19 crisis has stress tested companies’ business models, as well as its potential to present new challenges and accelerate existing disruptive trends. The direction of transformation might have changed, but the need for companies to rethink and reshape their business hasn’t.

M&A intentions

55%

of UK respondents after 19 February 2020 said they expect to transact in the next 12 months.

New approaches

That doesn’t mean business as usual in transaction terms. What happens next is highly uncertain, but I think it’s safe to say that the volume and value of deals will drop sharply – at least in the short-to-medium term. The type of deals will also change. There are likely to be more distressed M&A opportunities and there is clear potential for public-to-private transactions. Companies in a position to acquire also look set to proceed with caution. Around 40% of UK and global executives said that they would “focus more on target’s business resilience when evaluating the business/transaction” in this new era.

I also think that the trend towards thinking about the broader deal narrative will continue – and potentially be accelerated by this crisis. This latest edition of the Barometer shows that 96%, almost all, of UK respondents believe that it’s crucial or vital to articulate an acquisition to all stakeholders around long-term value creation, including inclusive growth.

We face the most uncertain period in most of our lifetimes, but we know that many companies in the EY survey have endured uncertainty before by transforming themselves and adapting to new realities.

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

Steve Ivermee

EY UK & Ireland Transaction Advisory Services Leader

Transactions leader working with multi-disciplinary teams to advise and support clients on the whole transaction life cycle from strategy to execution. Budding racing driver and opera lover.