Global survey: Digital transformation and M&A vital to achieve higher growth rates amid economic uncertainties and ongoing pandemic challenges

New survey of global private equity firms highlights the steps many are taking to get portfolio and private companies back on track as they plot post-pandemic expansions.

• 68% of respondents believe their companies and investments will deliver a growth rate of more than 50% over the next one to two years

• 92% say digital transformation will be the leading lever respondents deploy to achieve higher growth rates and position their companies for the future

• More than half (67%) also feel cross-border deals will be crucial to reinventing companies

• Economic volatility (92%) and regulatory challenges (90%) will be the main obstacles to higher growth rates in the year ahead.

Digital Transformation, Global Survey, M&A, Merge and acquisition, economic volatilityDigital transformation, JV alliances, reskilling of staff and M&A have emerged as key tactics for private equity firms looking to supercharge the growth of target companies 18 months into the COVID-19 pandemic.

And while growth expectations are slightly down on pre-pandemic optimism, the PE firms targeting high-growth companies are remarkably bullish about their prospects as the world stumbles into recovery.

The results are the focus of Baker Tilly International’s newly released report, Global dealmakers 2021 – Scale and speed: Fast-growing companies defy their limits, produced in association with Mergermarket.

As part of the research, Mergermarket interviewed PE funds that predominantly invest in fast-growth companies, seeking their insights into the drivers of growth after nearly two years of upheaval.

Their views provide a roadmap of best practices others can follow as they look for ways to grow and expand in what is still an uncertain and complex world.

The report found most respondents were confident the pandemic would prove to be a short pause for breath rather than an enduring setback in their search for growth.

An impressive 68% of private equity respondents remain confident the fast-growth companies they have invested in will deliver growth of more than 50% over the next one to two years.

A further third of respondents (30%) feel they can achieve growth of between 25% and 50%.

But to make these predictions a reality will require companies to double down on digital transformation, according to Baker Tilly Corporate Finance Lead Michael Sonego, who says investment in digital tools and technology has never been more important.

Even before the pandemic, digital transformation was a key priority for most businesses but the crisis had accelerated the rapid shift to digitalization.

“Digital has always been a differentiator but the past 18 months have shown it to be critical not only for reducing the impact of COVID-19 but as a competitive advantage, enabling better business insights and faster decision-making,” he said.  
“Digital transformation is providing companies with options, whether it is supply chain management or introduction of e-commerce platforms for businesses that traditionally haven’t engaged with customers in that way.
“This is a trend that shows no sign of slowing.”

Despite ongoing issues with travel, many PE investors are returning to international markets for growth.

Among respondents, 67% say that despite the ongoing difficulties of completing cross-border deals, they remain committed to international expansion and the broader globalisation of their businesses.

The remaining third are focusing on domestic markets, at least for now.

Ongoing uncertainty and regulation in key markets continues to pose challenges to fast growth in 2021, however.

In particular, economic volatility was cited as a concern for 92% of respondents, followed by regulatory challenges (90%) and further uncertainty and disruption related to COVID-19 (87%).

Despite the lingering volatility, PE groups were confident the right investment strategy could still lead to aggressive growth.

“For more than two-thirds of dealmakers to believe they can achieve a 50% or higher growth rate in the next two years is a sign that they are becoming more nimble and able to respond to uncertainty,” Mr Sonego said.

“Private equity has adapted to the volatile investment market exceptionally well, changing investment strategies to take advantage of new markets and digital transformation, while balancing risk by being flexible on investment timeframes and exit plans.”