Euro Debt Crisis Drives Search for Eurozone Acquisitions and Accelerates Investments in Emerging Markets
Posted: 28 November 2012
Euro Debt Crisis Drives Search for Eurozone Acquisitions and Accelerates Investments in Emerging Markets, Accenture Survey Finds
Companies signal long-term confidence in the eurozone economy by balancing cut backs with investments to gain competitive advantage
Half of eurozone-based companies are actively seeking acquisitions within the eurozone in response to the currency and debt crisis, according to new research by Accenture (NYSE: ACN). The survey of 450 business leaders in countries in and outside the eurozone also reveals that although 44 percent have accelerated their investments in emerging markets as a result of the uncertainty, companies in the currency area continue to invest in their eurozone operations.
The research, published in a report: Exploring the Eurozone: take cover or take advantage, covered France, Germany and Spain, as well as China, the UK and the United States. Ninety-six percent of responding companies have revenues of at least $1bn and more than half report revenues of at least $5bn.
A majority (55 percent) of worldwide respondents say they are delaying investment in the eurozone and exactly half say their long term investment plans are now more focused on emerging markets due to the debt crisis. Nevertheless, confidence in the currency area remains as a quarter of French and Spanish respondents (25 percent and 27 percent respectively) and 64 percent of German companies say that the crisis has made them accelerate their investment at home or elsewhere in the eurozone.
Fifty percent of surveyed eurozone companies say they will begin to seek acquisitions in the currency area immediately or have already started doing so (58 percent of German, 57 percent of Spanish and 36 percent of French respondents). This compares to 38 percent of companies outside the Eurozone.
Likewise, eurozone companies are more likely to seek joint ventures (JVs) in the currency area in response to the crisis. Forty-five percent are actively seeking JVs compared to 34 percent of companies outside the eurozone. German companies are most eager (56 percent) followed by Spanish companies (48 percent).
“It is inevitable that slow growth and uncertainty in Europe will make investment to emerging markets look attractive,” said Mark Spelman, managing director, Strategy, Accenture. “But the eurozone remains a good long term bet and a significant number of high performing companies see opportunities for organic and inorganic growth. This is less a case of outside investors snapping up distressed assets, and more about companies sharpening their competitive edge and gaining market share on the back of their confidence in the European economy.”
Outside the eurozone, Chinese companies appear keener than those in the US or the United Kingdom to take advantage of the crisis and increase their investments in the currency area, according to the survey. 25 percent of Chinese respondents say they plan to accelerate their investments in the eurozone due to the crisis, compared to three percent of US and 11 percent of UK companies. Seventy-one percent of Chinese respondents are seeking acquisitions in the eurozone or will shortly begin to do so, compared to 20 percent of US and 30 percent of UK companies.
Cutting back while investing in operational excellence
Although companies are making aggressive cut backs, there is also evidence that some are using the situation to improve their operational efficiency.
- 72 percent of executives in the global sample intend to implement discretionary cost cuts in the eurozone immediately, or have already started doing so. This rises to 83 percent of Spanish companies and 90 percent of Chinese companies.
- 48 percent of the global sample plan to implement staff cuts in the eurozone immediately or have already started doing so, rising to 53 percent of companies based in the currency area. Forty-three percent of executives are considering relocating some operations as a result of the crisis. This includes ten percent who may move some operations out of the eurozone all together. German and Chinese companies are most likely to relocate some operations.
Only a third (32 percent) of respondents believe the eurozone crisis presents no opportunities to gain competitive advantage. When asked which areas of their business the currency crisis is encouraging them to improve, 33 percent of the surveyed executives said they would to invest more in outsourcing, 30 percent in flexible supply chains, 28 percent in risk management capabilities and 25 percent in shared services.
“Our analysis of previous downturns is also relevant today: high performers in the upturns are those who have invested in the downturns,” said Spelman. “The eurozone crisis has resulted in a severe response from companies and our data suggests that they will continue to reduce costs over the longer term. But companies must balance measures to minimize costs today with efforts to improve their longer term operational excellence and competitive advantage.”
Confidence in the financial partners
The study suggests that some companies may have some challenges in financing intended operational investments or their more ambitious plans for growth and acquisitions. Fifty-nine percent of companies think that the capital position of Europe’s banks is exposed or dangerously exposed to the crisis. And even though 63 percent of eurozone respondents are confident that their primary bank is sufficiently or well capitalized, 45 percent say their primary bank’s ability to lend has been ‘hampered,’ or ‘hampered significantly.’
These figures may explain why almost half (48 percent) of eurozone respondents say they plan to establish new banking relationships in the eurozone. That average figure coincides with the proportion in Spain, and while only 31 percent of French companies participating share this view, the figure rises to 58 percent of German companies.
“Given the desire of many companies to seek growth and acquisition opportunities within the eurozone, banks will need to demonstrate their stability and capital strength in order to maintain client confidence,” Spelman continued. “High performing companies will intensify their demands from the banking sector as they look to take advantage of opportunities created by uncertainty in the eurozone.”
View the full report at www.accenture.com/eurozone
View the infographic at www.accenture.com/eurozoneinfographic