Reshaped firms ready for growth, says EY

BY Matt Atkins

Confidence in the global economy has risen considerably in the last year, says an EY report released in April. Just 9 percent of respondents to the firm’s Capital Confidence Barometer expect the economy to decline – the lowest number in the report’s history.

Real optimism

According to the report, executives are optimistic of a real and sustained economic recovery, and recent global megatrends have reshaped their strategies.

Today’s companies continue to grapple with geopolitical instability, a fragile global economic recovery and an emerging activist shareholder class. But while many would expect the pressures and shocks of the past few years to stunt the ambitions of business leaders, rather they have started to factor such trials into their long-term plans.

Credit available

The report reveals that, although credit has been available for some time, executives are now increasingly willing to put it to work in deals. The availability of credit is at its highest level for some time, and credit conditions are stabilising, overall. With a greater appetite for debt, the use of leverage in deal making is expected to rise, and with a hike in interest rates predicted, companies are rushing to secure financing at the current rates.

Quality not quantity

But while the pressure remains on companies to grow, the lessons learned from the financial crisis have led to a laser focus on cost structures and operational efficiency. As a result, a model of growth has emerged which sees firms actively seeking organic growth opportunities within strict parameters of cost management and operational efficiency. EY notes that firms are considering higher risk approaches to such growth, with firms adding to their existing product offerings. In addition, growing optimism that innovation can generate growth has seen R&D efforts almost triple in the last three months.

While M&A deal volumes – presently at record lows – are not expected to grow significantly, large transformational deals will make real headlines. In the past six months, the number of firms planning $5bn-plus acquisitions has doubled – evidence that M&A activity in the near future will concentrate on larger and more strategic deals. Quality, rather than quantity is likely to be the key concern of acquisitive firms in the months to come.

Full report: EY Capital Confidence Barometer April 2014 - October 2014

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