Survey Reveals Executives and Investors Optimistic about 2019, but Watching Growing Risks
NEW YORK, NY (November 16, 2018) – An overwhelming majority (81%) of companies and investors were optimistic about their ability to achieve their financial goals in 2019 (up from 79% in 2017), according to a survey of investors and executives conducted by CohnReznick, a leading advisory, assurance and tax firm.
CohnReznick surveyed more than 80 executives and investors at its eighth annual Liquidity and Capital Raising National Forum, which was held in New York City on October 23 and included more than 200 attendees.
This optimism comes amidst growing risks and potential shifts in the global business marketplace. Participants felt the possible Brexit fallout and competing with Amazon were the top two most concerning market risks (both at 22%) that may have the most negative impact and decrease the value of a business. Twenty-one percent of participants believed the U.S. midterm elections results would have a similar impact. In addition, twenty-five percent of survey participants believed that the Committee on Foreign Investment in the United States (CFIUS), its process and increasing jurisdiction would have substantial impact on their business in the year ahead.
In assessing operational risks that would have the most negative impact and decrease the value of the business, 20% ranked the inability to leverage digital assets as the top concern. Data security and privacy breach came in second at 18%, and the impact of tax reform followed close behind at 17%. Sixty-seven percent of those surveyed believed their company would be the target of a cybersecurity attack or privacy breach, clearly reinforcing the need for data privacy and security in the months and year ahead. Yet, despite these concerns, only 26% percent of the participants felt they were well- protected from a cyberattack or breach.
When ranking the operational factors that would have the greatest impact and increase the value of a business, 24% of survey participants believed that a stronger management team would be most important. This was followed by increased earnings (21%) and the development of disruptive products and services (20%).
More than half (53%) of survey participants believed valuations would decrease in 2019. Only 16% believed they would increase in the next twelve months. In 2017, 75% of those surveyed believed that today’s market valuations were sustainable for their industry in the next 6-12 months.
“Possible changes and growing marketplace risks are top of mind for investors, as the survey clearly indicates,” said Jeremy Swan, Managing Principal of CohnReznick’s Financial Sponsors & Financial Services Industry. “Despite growing cyber threats, companies are still not cyber resilient. Plus, the impact of Brexit, changes in Washington coming out of the midterm elections, and CFIUS all weigh on investor confidence. But, in light of this and other uncertainty, it’s encouraging to see that respondents were enthusiastic about achieving their financial goals in 2019.”
Additional findings included:
- Forty-nine percent of participants believed the elongated bull market would end in the next three years. Thirty percent thought it would end within the next year. Seventeen percent of those surveyed believed it would end within the next six months.
- Taking current market factors and economic conditions into consideration, most survey participants (68%) believed that the next 6-12 months would be a good time to pursue an acquisition. Twenty-nine percent of participants felt the top concern when buying a company was integrating the new acquisition (compared with 42% in 2017), followed by the purchase price at 25% (which went up from 16% in 2017).
- A clear majority of participants (89%) believed the next 6-12 months would be a good time to raise capital. Looking ahead at 2019, survey participants felt that commercial banks (28%) or private equity firms (26%) would be the ideal primary funding sources that they would pursue for their company’s growth initiatives.
- Likewise, 84% of participants thought that the next 6-12 months would be a good time to sell a business (compared with 88% in 2017). When selling, 44% felt that the purchase price was the top concern when thinking about selling a company.
- Many of the survey participants (70%) felt that strategic investors (i.e. competitor, corporate) would offer the greatest price for their businesses (compared to 93% in 2017) as opposed to financial investors (i.e. private equity, venture capital, family office) (30%, up from 7% in 2017).
Swan added, “Respondents indicated with certainty that 2019 would be a good time to borrow, acquire or sell a company, and we’re encouraged by the momentum for transaction activity and optimism in the investment community.”
CohnReznick LLP is one of the top advisory, assurance and tax firms in the United States, combining the resources and technical expertise of a national firm with the hands-on, entrepreneurial approach that today's dynamic business environment demands. Headquartered in New York, NY, and with offices nationwide, CohnReznick serves a large number of diverse industries and offers specialized services for middle market and Fortune 1000 companies, private equity and financial services firms, government contractors, government agencies, and not-for-profit organizations. The Firm, with origins dating back to 1919, has more than 2,700 employees including nearly 300 partners and is a member of Nexia International, a global network of independent accountancy, tax, and business advisors. For more information, visit www.cohnreznick.com.