3 minute read 3 Feb 2021
Delta Iv heavy rockets lifts

Pandemic compels US execs to accelerate investment in transformation

By EY Global

Ernst & Young Global Ltd.

3 minute read 3 Feb 2021

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COVID-19 tested US corporate leaders’ digital strategy as they innovated to meet customer demand.

In brief
  • Seventy-nine percent of US executives say digital investments performed well during the pandemic — but nearly as many say COVID-19 spurred them to invest further.
  • US executives’ deal intentions remain stable despite the 2020 US M&A deal cycle that started strong, experienced a steep drop-off and then rebounded.

How often has “the future is digital” come up in our EY Capital Confidence Barometer over the decade-plus that we’ve been surveying corporate executives? This principle has become so commonplace it has bordered on cliché. For some time, the Barometer has chronicled a steady increase in businesses adopting a digital-first mindset.

It turns out we hadn’t seen anything yet. Leave it to a global pandemic, and a year when the word "zoom" took on new meaning, to test corporate leaders’ digital preparedness — and catapulting some businesses into a true digital transformation. This past year was like a live-market beta test of business models, supply chains and portfolio holdings, as well as the fruits of a prior decade of tech-fueled investment and M&A. When asked in our survey whether their digital investments performed well in 2020, US executives overwhelmingly (79%) said yes … and simultaneously said the pandemic had increased their investment in digital transformation (76%). In short, many executives already thought they were in fifth gear, innovating to meet customer demand — and many now realize there’s a sixth gear.

We see themes like this throughout the 23rd edition of our Barometer, which returns after an unusually long gap. While we normally survey executives on a semi-yearly schedule, the extraordinary circumstances of 2020 — not just the pandemic but the unsettled geopolitical environment — led us to wait about 10 months, until just after the US presidential election, to measure sentiment in the C-suite. The wait was worth it, not only because it provided a more settled moment for our survey, but also because it permits a longer view, maintaining the predictive power of our study over the years.

Take dealmaking, for example. M&A in 2020 was essentially several deal market cycles rolled into one: a strong open to the year; a steep drop-off due to COVID-19 before the first quarter was even over; a spring bottoming-out followed by a summer rally; and fourth-quarter deal volumes that topped the best moments of the first. So what does all this turbulence mean for forward-looking M&A intentions? Our snapshot finds 45% of US executives planning a deal in the next 12 months — slightly below the average we’ve seen over the Barometer’s history, but a remarkably sturdy number after the turmoil of the last cycle(s). We also note that more than half of respondents (55%) accelerated portfolio reviews in the wake of the pandemic, which will likely produce both more investment and divestment. This all suggests a busy 2021 for corporate strategy, as businesses apply the lessons learned in 2020 to both organic and inorganic growth.

If there’s any maxim the last year reinforced, it’s that fortune favored the bold. Our survey finds plans for transformative deals much higher than normal (31%, even with plans for bolt-on deals), which we take as a sign that companies are using crisis as opportunity and not waiting out the next turn in the market environment. The US economic recovery — coming out of a divisive political season and the slow but steady rollout of coronavirus vaccines — may or may not be the V‑shaped bounce many were hoping for. But American businesses are already kicking it up a notch.

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Summary

The EY Global Capital Confidence Barometer 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 EY Global

Ernst & Young Global Ltd.