- 62% of Malaysia respondents expect a U-shaped recovery with a longer period of slower economic activity extending into 2021, while 38% expect a V-shaped recovery
- Executives to move from crisis mode to focusing on strategic and portfolio reviews to plan for the future
- Companies see opportunities to accelerate acquisitions and transformation, with almost half of Malaysia respondents (46%) expecting to do deals that significantly push the dial and transform the business
The COVID-19 pandemic has seen business and global leaders trying to manage a crisis that very few were prepared for. According to the 22nd edition of the EY Global Capital Confidence Barometer (CCB22), Malaysia respondents anticipate a prolonged and deeper impact on the economy, and are now focusing on developing resilience in their supply chains, protecting their revenues and managing their margins and profitability, while reconfiguring capital allocation and M&A plans for the post-COVID-19 world.
A majority (Malaysia 94%, SEA 88%, global 73%) of the survey respondents of more than 2,900 C-suite executives globally, including 260 from SEA (covering Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam), expect the COVID-19 pandemic to have a severe impact on the global economy in the form of depressed consumer sentiment, deep decline in consumption and disrupted supply chain.
In Malaysia, 62% of the respondents expect a “U”-shaped recovery period of slower economic activity extending into 2021, while 38% see a “V”-shaped recovery and a return to normal economic activity in Q3 this year. Very few (less than 1%) foresee an “L”-shaped recovery and recessionary conditions until 2022. Nevertheless, all Malaysia respondents (100%) expect the pandemic to cause a decline in their profitability.
Indeed, as executives review their operating models in response to the crisis, governments around the world, including Malaysia, have been proactively offering stimulus packages to help enterprise and people weather the impact of COVID-19.
George Koshy, Malaysia Strategy and Transactions Leader, Ernst & Young PLT says:
“The pandemic has accelerated economic slowdown and created business disruption coupled with a liquidity crunch. The general consensus by the Malaysia respondents seems to indicate that there is an imminent risk of a recession, the magnitude of which is anticipated to be large with a prolonged U-shaped recovery. Across all sectors, companies will need to transform, reboot and reshape themselves, which will give rise to both opportunistic and strategic M&As in the post COVID-19 era.”
Focusing on strategic and portfolio reviews
Businesses realize the need to change and have taken steps to re-evaluate and change their business models. Emerging from a global crisis such as COVID-19, Malaysia respondents are looking at more frequent and robust strategy and portfolio review processes to better understand the future direction of their markets and the resulting growth opportunities.
An always-on strategy and portfolio review process will allow companies to identify areas of growth at the earliest opportunity and surface areas of under-performance sooner. This will also enable them to prepare to divest and reinvest should the need arise. Divesting stressed and distressed assets is a typical trend during a crisis and recovery and we should also expect this post-COVID-19.
Opportunities to accelerate acquisitions
After addressing the now and planning for the next, companies will eventually focus on the beyond — activating transformation.
Despite current social and economic upheavals, executives are maintaining some focus on M&As. If there is any prolonged downturn due to the current crisis, executives may be bolder in their ambitions and look to acquire those assets that will help them accelerate into an upturn faster.
Even with the decline in market sentiment, 47% of the Malaysia respondents say that they intend to pursue M&A transactions in the next 12 months. This is higher than the Malaysia Capital Confidence Barometer average of 44% since 2010. Three-quarters (71%) of Malaysia respondents are expecting to see increasing competition for assets in the next 12 months, with a majority (53%) believing the competition to come from private capital. The emergence of COVID-19 underscores the need to assess potential targets more broadly in terms of resilience. Executives continue to look at a range of drivers for M&A to complement their strategic direction. Growth in new markets and adjacent sectors is key. But they will also look to acquire new capabilities and protect against disruption of all kinds.
Almost half (46%) of the Malaysia respondents expect to do deals that significantly push the dial and transform the business. This is more aggressive than the global respondents, where the majority of global respondents (42%) expect to do bolt-on acquisitions that complement their current business model and only 27% expect to do transformative deals.
The transformation imperative
As most Malaysian companies start to look ahead to the new normal, we expect to see large-scale transformation in many sectors, as many of them will be significantly reshaped. Companies will consider new strategies for better agility, flexibility and resilience. Companies are already taking steps to effect change in their global supply chains (44%), digital transformation (28%), speed of automation (28%) and management of workforce (39%).
Many companies will no longer see COVID-19 as a one-off event. The case for change is highest when adapting to a crisis. In many ways, the unwelcome and unexpected emergence of the pandemic will further cement transformational strategies in the boardroom. 59% of Malaysia respondents are already undertaking a significant transformation program. Pre-COVID-19 crisis, the key reasons driving transformation initiatives were pressure on revenue targets (25%), keeping up with competitors’ technology (15%) and moving into adjacent sectors (15%).
Looking beyond the crisis, many companies will be turning to M&A to take advantage of lower valuations and the rise in distressed assets coming into the market and to advance their transformation agenda. Although some dark clouds remain, Malaysian companies have reasons to be cautiously optimistic about addressing today’s challenges, planning for the next and thinking beyond.
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About the survey
The Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom practices in the way companies manage their Capital Agendas — EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world, conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company. The panel comprises select EY clients and contacts across the globe and regular Thought Leadership Consulting contributors.
- In February and March, Thought Leadership Consulting surveyed on behalf of EY a panel of more than 2,900 executives in 45 countries; 70% were CEOs, CFOs and other C-suit-level executives.
- Respondents represented 14 sectors, including Financial Services, Consumer Products and Retail, Technology, Life Sciences, Automotive and Transportation, Oil & Gas, Power & Utilities, Mining and Metals, Advanced Manufacturing and Real Estate, Hospitality and Construction.
- Surveyed companies’ annual global revenues were as follows: less than US$500m (25%), US$500m–US$999.9m (25%), US$1b–US$2.9b (18%), US$3b–US$4.9b (10%) and greater than US$5b (22%).
- Global company ownership was as follows: publicly listed (57%), privately owned (31%), family owned (9%) and private equity portfolio company (3%).