Global consulting firm AlixPartners today announced the findings of its 17th Annual Turnaround and Transformation Survey, which reveal that over 600 of the world’s leading finance professionals most experienced in responding to the downside of economic volatility see a period of widespread business distress looming.
- For the first time in 50 years, the downturn will be inflation-led – with 97% predicting that inflation will be a major driver of economic stress
- 24% anticipate a recession before the end of this calendar year, and
- 70% see it happening in the next 12 months
- More than half of global respondents (57%) believe the likelihood of a U.S. recession is 50% or more in the next 12 months.
- Challenging financing markets and the efforts of ESG compliance
As belts tighten, companies’ chances of survival will be measured by the amount of cash sitting on their balance sheets. More than a third of survey respondents expect the majority of distressed companies that tapped the credit markets for financing in 2021 will need more in the next three years. Adding further pressure to the situation: survey respondents say that the availability of capital has decreased (44%) or remained flat (43%), and 52% say financial terms have grown more restrictive compared with 2021.
Compounding the already challenging financing markets are the efforts to comply with ESG guidelines. More than 84% of survey respondents believe a company’s ability to comply with ESG guidelines will impact its financial performance, and 69% agree that access to financing depends on ESG compliance.
Recession-driven M&A activity expected to jump
A recession will drive not just company restructurings but will lead to a new round of industry consolidation and reinvention: 76% of survey respondents believe that M&A transactions involving distressed assets will increase; 12% think that these will reach a new high. In an environment ruled by disruption and uncertainty, major corporations are attempting to stabilize enterprise value, and private equity firms are streamlining their portfolios. This environment creates opportunities for companies with the appropriate capital structure to pick up weaker players via M&A and build greater competitiveness for the long term, potentially at discounted prices. On the flip-side others are reassessing geographic areas of challenge or other cost-cutting measures and taking strategic action to prune portfolios and corporate structures. Would-be buyers and sellers alike are facing renewed pressure from investors and boards to focus on their core businesses to drive growth in the face of disruption. It remains to be seen where the best deals lie and who will benefit the most, but it’s clear that our respondents see a busy market on the horizon.
These findings are based on a survey conducted in May 2022 of over 600 senior experts from investment banks, lenders, financial advisory firms, law firms and corporate professionals across 20 industries based in the US, UK, Europe, Middle East and Africa, and Asia. The full report, “Preparing for the Storm” can be viewed at: alixpartners.com/storm.
Joff Mitchell, global co-lead of the firm’s Turnaround & Restructuring Services practice, said: “Business leaders must brace for further uncertainty in the realm of geopolitics, interest rates, and inflation. Growth can no longer be fuelled by cheap money, and business models have to be supported by profits. The winners will be those leadership teams who can transform their businesses with pace, agility, foresight, and an action-oriented point of view to navigate the choppy waters ahead. If a ‘turnaround mindset’ proved to be a defining factor in establishing a competitive edge during the height of the pandemic, it must now be locked in to effectively tackle a new and even bigger wave of market volatility.”
Jim Mesterharm, global co-lead of the firm’s Turnaround & Restructuring Services practice, said: “The finance experts who responded to our survey have borne out the stark reality — that the day of recession reckoning is upon us. While no one can pick the precise timing, our respondents tell us we are heading for a global recession and another intense period of restructuring. Companies unable to refinance because new funding is not available or because it's too expensive, are going to be at the forefront of this. If your runway is less than a year, then you’re heading for panic mode, assuming you’re not in it already.”
AlixPartners is a results-driven global consulting firm that specializes in helping businesses successfully address their most complex and critical challenges. Our clients include companies, corporate boards, law firms, investment banks, private equity firms, and others. Founded in 1981, AlixPartners is headquartered in New York and has offices in more than 20 cities around the world. For more information, visit www.alixpartners.com.
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