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In this uncertain context, the only certainty is that most companies will show in 2020 much lower results than the ...
In this uncertain context, the only certainty is that most companies will show in 2020 much lower results than the regular ones. Will they be able to recover the position lost during 2021? What can we do to reduce the impact in the Company Valuation?
By Eugenio Micheletti* for staffingamericalatina
The scenario was already complicated. On January the 20th, in Staffingamericalatina.com we summarized some events that were challenging business development, either in local and global markets. Added to this is the Covid-19, with unthinkable effects, to such an extent that the General Secretary of the United Nations (António Guterres) said “is the most difficult global crisis since the WWII”.
Most of the countries responded too late to the pandemic, and some of the measures were isolation and the suspension of those activities that are not essential for the distribution of food and medication.
The more the countries delayed the preventive measures, the longer it took to pause the economies to avoid (or minimize) the sanitary collapse (because the delay meant more cases in less time).
In general (we should analyze sector by sector, but that is not this article’s aim), companies incomes had dropped down, and they are paying the structural costs, with no fiscal incentives, and without credit lines to help in the short term. Board of Directors are evaluating other business contingency plans, extreme ones, because I dare to say that none of them had foreseen a crisis of this magnitude. Financial and economic forecasts for 2020 are very pessimist.
A possible scenario could be that by the end of May we could have a clearer idea on how to return to “normality”, and while we solve the urgencies of our clients and the internal structures, we have to focus seriously on the strategy, as the horizon could be impossible to reach. “Normality” between inverted commas, because the business models will not be the same as before the pandemic.
Then, is obvious to conclude that companies’ worth will drop-down. Could we minimize this impact? The answer is “SURE, but we have to change”. We always say “urgency takes up time to the important things”. Nevertheless, nowadays the urgency IS the important thing. And there is no place for delays.
Since we advise Boards of Directors in M&A processes and Company Valuations, we’ll summarize some interesting ideas to add value to the shareholders, for a rapid and sustainable recovery, improving the business models, increasing profitability, and consequently, making companies more attractive for investors.
Firstly, we must set out to the level of digitalization of the company, defined in a business model in which the technology (most of all the AI and the machine learning) has a leading role. We are not just talking about automating processes, or changing the ERP, but to start “thinking digital”, to understand the platform economy, and consequently make the most of the network effect, from the culture to the core business processes.
On the other hand, as we usually state, it is key to focus on the local market, while having a global perspective. This enables companies to be up-dated about novelties, regulations and actions from sectorial institutions in other markets; also to make benchmarking permanently; and generate business opportunities in other markets (through acquisitions, alliances and/or organic development) to reduce the geographic risk.
Other necessary step is to broaden the mix of services, to those with more value added and higher gross margin, and then increase the return of investment and the company worth.
As an example, we can observe all those companies that have been less affected by the crisis, beyond the sector where they operate (tourism or entertainment were too much affected, and public sector, health care and food grew).
We will go through this and other issues in the following journals.
The Value of the Company? This is always a consequence of the strategy and a great management. We commented three aspects to work on to get into the necessary changes, and as a result, we will gain a higher value for the shareholders.
The Covid-19 showed clearer that, in businesses, introducing technology and digital transformation are both imperative to rapidly adapt to changes, increase profitability, and encounter any crisis with strength. And while we strengthen the business models and the return, the company boost its worth.
*Eugenio Micheletti is Director of Emerging Staffing Brokers – email@example.com