3. Artificial intelligence
Artificial intelligence (AI) is set to transform almost every sector by enabling businesses to operate more efficiently, interact better with their customers, develop more valuable products and services, and gain deeper market insights. EY’s recent research, Tech Horizon: Leadership perspectives on technology and transformation, found that 53% of business leaders were prioritizing AI as their top investment for the next two years, along with cloud technologies.
Even before COVID-19 struck, there was huge interest in the capabilities of AI, and the outbreak of the pandemic has only served to reinforce the value of the technology. For example, AI can be used in automated monitoring systems that track the spread of the virus. It can also be used to support food safety. There are many other opportunities to apply AI that do not relate directly to COVID-19, however. I know that some of my private equity clients are using AI to analyze data relating to potential acquisition targets.
Sticking with the topic of acquisitions, volatile trading conditions typically present opportunities to buy distressed assets. Today, private equity firms are monitoring market conditions closely since they know that investment targets could emerge from these conditions. The most distressed sectors – including construction, oil and gas, real estate, retail, shipping and travel – are likely to present the majority of targets.
Private equity firms currently have large capital sums to invest in the right prospects. At present, however, there is limited M&A activity. This is due to the lack of visibility around the short and medium term, which makes it difficult to price assets. Nevertheless, we are likely to see M&A activity pick up once the global economic outlook becomes clearer. Also, as the year unfolds, we may unfortunately witness an increasing number of companies enter administration, which will lead to administrators disposing of assets.
Ahead of COVID-19, skills shortages were an increasing problem for private businesses, both in EMEIA and globally. Prized digital skills, such as expertise in analytics and artificial intelligence, were particularly sought-after. In 2018, the World Economic Forum predicted that at least 133 million new roles might be generated by 2022 as a result of the new division of labor between humans, machines and algorithms.
In the near future, we are likely to see high unemployment in many EMEIA markets due to the economic fall-out of the pandemic. This will not necessarily make it easier for businesses to secure digital skills, however, since most unemployment is likely to be generated by organizations with outdated business models. Nevertheless, there is an opportunity for private businesses to hire talented staff who are now out of work and to reskill and retrain them in new technologies that could be a driver for growth.
Undoubtedly, opportunities exist for private businesses in EMEIA today – and there will be even more tomorrow. At the same time, however, there are also plenty of risks. Uncertainty is undoubtedly the greatest risk of all. While this risk can never be entirely mitigated, businesses will better manage it if they have robust cash flow forecasting procedures and undertake comprehensive scenario planning. In this era of opportunity, the most successful businesses will be those that come to the market prepared.