Ten key issues for private companies to manage in 2019
31 January 2019: A new global report from Deloitte Private, out today, highlights ten key issues and trends that private companies around the world need to get to grips with to maximise opportunities in 2019.
From the growth of artificial intelligence, to managing cybersecurity and globalisation, Private companies issues and opportunities – global considerations for 2019 highlights opportunities for private companies to succeed in the current environment and drive disruption rather than be disrupted. It also examines the landscape and hurdles to innovation for the sector.
The ten issues are grouped into three main themes:
- Data analytics
- Artificial intelligence
- Internet of Things
6. Finance transformation
7. Future of work
Deloitte Private Commercial Advisory partner, Damien Bones, says most businesses are aware of how quickly technology is changing how they do business, but find it hard to know what to move on first. The finance function can be a good place to start, as it impacts so many different parts of a business.
“Today, private company CFOs need 360-degree awareness,” says Bones. “They’re charged with keeping pace with the financial implications of the blistering rate of change affecting virtually every industry, while at the same time diverting a good part of their attention to considering a future that could look drastically different than the present.
“Finance needs to not only to streamline, but also start viewing operational challenges through a forward-focused lens. That will mean placing the right people around them - think analysts instead of data entry clerks, as well as developing a core of those with ‘soft skills’ who can communicate with internal and external stakeholders as well as crunching the numbers. The finance staffers of tomorrow are the ones who can get along with and partner with the rest of the business.”
Despite the recent run of protectionist trade policies, globalisation remains alive and well. “The digitalisation of the global economy and advances in cloud computing in particular, have made it far easier for even small and growing companies to learn about other markets and access them at a fraction of the cost,” says Deloitte Private Commercial Advisory Leader, Mark Allsop.
Notwithstanding the benefits, globalisation has made private companies – both in Australia and overseas - more vulnerable to the domestic policies of other countries. In addition, the speed of change driven by technology means those companies purely focused on their domestic market may not survive. But as Allsop says, that doesn’t mean entering the global marketplace will be easy.
“A lot of smaller, private companies I work with in Australia lack the experience and internal capabilities to manage an overseas expansion. There are many decisions to be made, including where to go, whether to expand across borders organically or through acquisition or partnership, and what kind of operation will be needed on the ground to get up and running. Private companies might also lack the brand recognition to attract locally sourced talent.”
Regulatory hurdles, Allsop points out, add another layer of complexity: “Private companies may not have the systems and structures in place, or the balance sheet strength, to do everything their customers are asking them to. They have to make some difficult choices around what they’re able to do and what they have to say ‘no’ to, and that can be a bit of a risk.”
Lack of potential successors often leads to M&A
A few decades ago, many family-owned businesses enjoyed a natural transition to someone from the next generation, allowing for years of preparation to ensure the successor was ready. “These days younger family members have amazing learning opportunities,” says Tara Hill, Deloitte Private National Deals & Private Equity Leader. “They have been sent to great learning institutions, started careers of their own and suddenly they are not interested in taking over the family business. And that’s when the generation that owns and runs the business realises it doesn’t have an exit strategy.”
What the family has is a substantial amount of money wrapped up in the business, often the value built in the business is required for retirement. Increasingly, families are looking to strategic financial buyers to help provide them with liquidity. However, many aren’t ready for the demands that will be placed on them in an outright sale or private equity investment in the business given many private companies run lean finance and administration operations.
Increasingly, private businesses are exploring more avenues to exit or expand. “Financing structures continue to evolve including more flexible private equity investment and funding, and in the current market, relatively cheap debt. There also continues to be an opportunity for private companies to better prepare and present themselves for a transaction,” says Hill. A planned transaction readiness path provides private companies with an opportunity to maximise value, consider all possible paths and ensure they have the assistance and support they require.
Whether they are on the buy side or the sell side, private companies need to consider who is going to manage the process, Hill says. “One of the first questions I tend to ask of private companies involved in a transaction is: ‘Have you got your team?’ Companies that have been trading for decades tend to have been run by executives whose skills may not be a good match for today’s M&A environment. In some cases, they may need to make a change in the C-suite to add individuals with transaction experience.”