29/06/2023 According to the C-suite barometer 2023 companies are turning to strategic alliances and increasing internal output to deliver growth in the uncertain economic environment. We speak to Firas Abou Merhi, Partner at Mazars, about why that is and how businesses can navigate uncertainty to achieve growth.
Organic growth and strategic alliances were identified as significantly more important than mergers and acquisitions (M&A) in terms of sources of growth in the survey. Why do you feel that is?
I think that in an age of economic uncertainty, M&A can often be seen as riskier than organic growth or a strategic alliance. We can see that in terms of trends, the global number of deals that are happening is decreasing and has been for the last few quarters.
But deal activity is not at zero either; there is still M&A activity out there. When there is a stress situation, a lot of companies think about streamlining their organisation, and that can mean divesting non-core or underperforming activities. But that also fuels M&A activity because when groups divest factories, business lines or subsidiaries, it creates opportunities for buyers to acquire them. So, there is still M&A activity going on, but it’s just seen as riskier right now and sometimes more difficult to finance with higher interest rates and lower availability of credit in some regions.
The main barriers to delivering growth were economic uncertainty, energy prices and geopolitics. How can businesses deliver growth in this volatile environment?
With our clients, there is a stronger focus on operations, such as cost rationalisation, energy savings and rethinking the supply chain. In the energy space, the focus has been on the development of power purchase agreements, which are direct contracts between corporates or industrials and energy producers to lock in long-term prices.
Improving efficiency in operations and looking for cost savings help to protect the bottom line. At the same time, freeing resources allows investment in R&D and client acquisition.
In the survey results, the number one priority for investment was increasing the client base. But, at the same time, companies’ cost structures are increasing because of rising inflation or energy costs. So, there’s a balancing act in play – at some point, you need to work on your cost structure to make sure that it's not increasing dramatically and that there are still resources to bring in new clients.
Investment priorities identified in the survey included sustainability, investment strategy and external growth, while the top priority was acquiring new clients. How can businesses include all these priorities in the same strategy?
It's always a challenge, especially when we speak about sustainability with our clients. Some see sustainability as a cost, but in today's world, it’s also a revenue generation opportunity. New clients don't just come by themselves. Today, being more sustainable and proving that you are working on your societal impact is definitely a way to get new clients; it is a client generator.
In short, all the priorities identified can fuel the acquisition of new clients. Investing in better products, having a clear pathway to becoming a sustainable business and doing M&A are all ways to get new clients.
It’s interesting to see that a level of confidence remains in this year’s survey. It decreased compared to the last two years, but confidence remains high, so companies clearly still want to grow and invest. They may want to do it internally or with an alliance rather than M&A, but they still have confidence, even in today’s uncertain business environment.