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01/07/2019
Businesses Express Optimism, and Concern, About 2019
Two of the top concerns raised in a survey published in November by CohnReznick have been much in the news lately: risks related to the recently announced Brexit deal between the U.K. and the EU, and the uncertain competitive environment being driven by Amazon. About 22 percent of respondents respectively cited the Brexit and Amazon issues as topping their worries list.
Nevertheless, CohnReznick’s polling of more than 80 executives and investors at the firm’s eighth annual Liquidity and Capital Raising National Forum showed them to be confident about meeting financial goals in 2019. Optimism stood at 81 percent this year, up from 79 percent in the 2017 survey.
Issues on leaders' minds
The U.K. separation from the EU has come more sharply into focus after a round of government resignations and opposition to Prime Minister Theresa May’s deal. The possibility remains that the U.K. could end up outside the union without a formal agreement in place. This could have wide-ranging effects on the finance, real estate, and some other sectors of the global economy.
Some of the fallout could be positive for the European operations of U.S. companies and even for some sectors of the U.S. economy in the medium term.
Amazon’s long-awaited decision on its new headquarters locations will have an immediate impact, but the company’s aggressive posture will be a continuing source of uncertainty. Beyond legacy sectors such as retail, electronics, and books, Amazon is bringing transformative change to consumable manufactures, where it’s developing its own product lines, and medical care, where its venture with Berkshire Hathaway and JP Morgan Chase could be a game-changing model. It’s also expected to extend its reach into pharmacies, package delivery and logistics, and undoubtedly other areas.
CFIUS will mean wider scrutiny
A less publicized issue was cited as a priority by 25 percent of the survey respondents. The Committee on Foreign Investment in the U.S., which is a multi-agency vehicle with approval jurisdiction over new foreign investments, was given additional powers by Congress in August. Under the Foreign Investment Risk Review Modernization Act, CFIUS will have a broader mandate.
The committee, which comprises representatives from the Defense, State, Justice, Energy, Commerce, and Homeland Security departments, quashed several high-profile transactions earlier in the year, one of which would have involved takeover of the MoneyGram funds transfer company by the Chinese electronic payments operator, Ant Financial.
Concerns over the role played by CFIUS focus not only on how the deteriorating relationship between the U.S. and China may play out. The new legislation also raises the prospect that transactions from a larger number of countries will be scrutinized and that the approval process will be more difficult and time-consuming. In addition, issues like competitiveness may be cast in a broader national security perspective not necessarily favorable to the planned transactions of U.S. companies.
Tech worries remain
As might have been anticipated with the number of recently publicized hacks and data breaches, cybersecurity also is on the minds of business leaders and investors. The CohnReznick poll found nearly 70 percent of respondents believed their companies were likely to be attacked, but only 26 percent said they were adequately protected. They also expressed the related concern over the best means of effectively leveraging their digital assets.
The overall mood for 2019 can best be described as mixed. Just over half of respondents said company valuations would decline next year, against 75 percent in the 2017 survey expecting them to increase. Yet, taking current market factors and economic conditions into consideration, most survey participants believe that 2019 could be the year to pursue their growth initiatives. Sixty-eight percent said that the next 6-12 months would be a good time to pursue an acquisition, while 89 percent said the next 6-12 months would be a good time to raise capital.
Subject matter expertise
Jeremy Swan
Managing Principal - Financial Sponsors & Financial Services Industry
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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.