Access: Not Surviving, But Thriving
“Whatever got you here may well prevent you from getting there.” - Marshall Goldsmith
Hello reader,
Welcome to the 51st edition of Access - last week’s edition featured expert predictions for 2024. The most clicked link from our roundup was this useful explainer on private credit, from Private Equity Alpha.
This week we’re taking a closer look at how organisations can successfully navigate the choppy waters and not only survive, but thrive.
Until next time -
Melissa & Liz
In case you missed it…
Last week, we shared what industry experts are predicting for 2024 🔮. By all accounts, it’ll be a make or break year for many organisations, with AI emerging as a dominant theme for investors, workplaces, and consumers. Check it out below!
FEATURING:
In Brief: The latest global private markets news, including:
Interest Rates: Friend Or Foe?
Banking’s Gen AI Opportunity
2024: Cautiously Optimistic
In Depth: Not Surviving, But Thriving
IN BRIEF
Below, you’ll find a selection of global news stories from people and companies in our private markets network.
Interest Rates: Friend Or Foe?
Taking a closer look at higher interest rates, Cyril Demaria-Bengochea, head of private markets strategy at Julius Baer walks readers through the impacts on PE, including:
Short term: Cash distributions to investors have slowed down
Medium term: Increased investment opportunities as more companies seek to divest non-core assets and execute carve-outs = more deals
Long term: Deals completed now will benefit from lower valuations & better terms, translating into stronger deal performance as valuations eventually recover.
‘“Higher interest rates are surely bad for private markets” is a common belief. The reality is more nuanced: while existing investments are tested, new ones are expected to benefit from tailwinds in the form of lower valuations and better terms.’
- Cyril Demaria-Bengochea, head of private markets strategy at Julius Baer
***
Banking’s Gen AI Opportunity
It’s no secret that generative AI is poised to transform industries. A recent report from McKinsey suggests that the banking sector could be one of the major beneficiaries of the shift, with the potential to realise serious value - the chart below outlines the projected size of the opportunity.
‘According to McKinsey analysis, about 75 percent of the value created by gen AI across all industries to date falls under customer engagement and three other categories: content synthesis (virtual expert), content generation, and coding and software.’
***
2024: Cautiously Optimistic
A recent article in the FT outlines some of the opportunities & challenges facing the private capital industry this year.
‘The investment case for PE has long been established and private capital is now abundant, enabling mature and high-quality companies to stay private for longer as there is more funding to support businesses on a larger scale.’
It notes that market conditions have shifted significantly, with the cost of debt taking a more prominent role, and banks retreating from leveraged buyouts, leaving private credit as the primary source of funding. There have also been obvious funding disparities, with larger companies raising capital more slowly, while smaller counterparts struggle to meet fundraising targets. The associated slowdown in M&A activity has caused a bottleneck, hindering the timely return of capital to investors and its redeployment.
But! Things are looking up for 2024, including…
More Deals in 2024: Anticipation of a more eventful private equity landscape in 2024, with activity likely to increase (cautiously).
Plenty of Dry Powder: Around three-quarters of buyout dry powder was raised in the past three years, presenting opportunities for deployment in the market.
Value Creation: The value creation capabilities of PE managers are expected to become more prominent as interest rates stabilise.
Positive Pipeline: Encouraging signs suggesting a clearing of the fundraising bottleneck.
IN DEPTH
‘45% of CEOs believe their company will not be viable in ten years if it stays on its current path.’ - PwC’s 27th Annual Global CEO Survey
Global disruptions have created a challenging landscape for businesses. A recent article from the World Economic Forum Annual Meeting highlights some of the trends shaping the business environment, including political instability, the rise of AI, and the end of hyper-globalisation.
‘In a world where the cost of capital is higher and the options for where to invest have changed, businesses will face complex choices.’
- Jo Taylor, President and CEO, Ontario Teachers' Pension Plan
Against this backdrop, many businesses are under pressure to not only survive, but to thrive. We reported last week that OnlyCFO had declared 2024 as the 'Year of Focus & Revenue Reacceleration,' highlighting the imperative for efficient revenue growth amid post-pandemic challenges, particularly for organisations seeking funding or considering an IPO.
However, a study published last month found that while 84% of the companies surveyed demonstrated resilience, only 34% were able to turn challenges into opportunities and achieve above-average growth compared to market benchmarks.
”Resilience of corporations and businesses is not static, but a dynamic process. It requires constant adjustments and adaptations…”
- Felix Blobel, Partner and co-head private equity at Noerr
In short, it’s not enough to simply show resilience, organisations must adapt quickly enough to keep up with the pace of change - no mean feat in the current market conditions.
Open New Doors
Diversification strategies can play a pivotal role in fortifying businesses against economic uncertainties and fostering sustainable growth.
Organisations that successfully diversify their revenue streams can:
Mitigate risk: Diversifying product or service offerings across various market segments acts as a risk mitigation strategy. By reducing reliance on a single revenue stream, businesses can withstand economic downturns or sector-specific challenges, minimising the impact of unforeseen disruptions.
Tap into new markets: Diversification opens doors to new markets, allowing businesses to tap into evolving consumer needs and emerging trends. This expansion not only broadens the customer base but also positions the company to thrive in competitive environments.
Adapt to rapidly changing conditions: Markets are dynamic, and consumer preferences evolve. Diversification enables businesses to adapt swiftly to changing conditions, ensuring resilience in the face of economic challenges.
Ultimately, businesses that can adapt rapidly to change will be better positioned to align their products with shifting market demands and secure long-term sustainable growth.
When The Only Constant Is Change
PwC’s 27th Annual Global CEO Survey is titled ‘Thriving in an age of continuous reinvention’. One of the key findings was that many of the constraints facing CEOs are at least within their realm of influence.
According to PwC, business leaders can maximise this impact by engaging & empowering their teams. Pay attention to any sentiment gaps between senior leaders and employees as this will tell you where engagement efforts can be best spent.
Among CEOs whose companies have broadly adopted generative AI, for example, 84% believe it will increase efficiency in their employees’ time at work in 2024. Employees appear less convinced - only 31% of workers responding to PwC’s Global Workforce Hopes and Fears Survey 2023 expected generative AI to increase their productivity and efficiency at work in the next five years.
When it comes to handling change and reinvention in the workplace, trust is critical. Employees need to feel safe to speak up with new ideas, and to ‘fail with pride’ so that shared learning can drive continuous improvements. If employees are invited to play an active part in early incubation of ideas, this can also really help to generate excitement and drive user engagement.
But how do you beat the fatigue associated with the feeling of constant change?
Many of the clients we work with are experiencing workplace change when they come to us for help. Often, this is as a result of digital transformation that has impacted processes and roles across the business. The hard work doesn’t stop once the system goes live; there’s a critical period that follows this where change needs to be properly embedded. It can feel like the disruption is never ending.
In this situation, where changes can’t be avoided, a useful strategy to reduce fatigue is to balance out the increased job demands with additional resources. Here are some examples:
Additional training opportunities to help employees build the skills needed to adapt to new technologies or processes.
Encourage staff to take regular breaks and use their paid holiday allowance.
Flexible work arrangements, such as remote work or flexible hours can also be helpful, and it’s worth refreshing the offer regularly as your team’s needs might shift over time.
Implement wellness programs that focus on both physical and mental wellbeing. Team or company-wide challenges are great ways to engage everyone in a common goal while encouraging healthy practices.
Consider using temporary staff to backfill or supplement your workforce where budget allows. This works best where the tasks are straightforward and someone can ‘drop in’ without too much training.
Summary
So what can leaders do to ensure their business thrives? There’s not a ‘one size fits all’ solution, but after researching this theme we’ve identified a few key approaches:
Achieving resilience requires a degree of mental flexibility. Teach your teams to consider problems from multiple perspectives, challenging assumptions and generating ideas that may not be immediately obvious.
Encouraging creative thinking within your business has direct links to commercial success, increasing the chances of finding new avenues for revenue diversification.
An open failure culture can positively contribute to resilience and drive innovation.
Many of the challenges facing C-suite are within their realm of influence. Senior leaders should focus on engaging and empowering teams to deliver change.
Trust is critical, so that employees feel safe to speak up with new ideas, and to ‘fail with pride’, so that shared learning can drive continuous improvements.
When teams are feeling overwhelm from constant change, consider increasing the resources available to them to balance out the increased job demands.
And finally… Does your product get better over time?
A great short post from the next big thing, written by venture capitalist Nikhil Basu Trivedi, who says:
A question I find myself asking founders, often in first meetings with them, but sometimes even after working together for a while, is some version of: “is the product or service actually getting better over time?”
The post outlines the thought process behind the question - as I read it, I couldn’t help but think about how this applies at a personal level. Am I getting better over time? Jury’s out… Have a look, it’s a thought provoking read.
Thanks for reading. If you don't want to miss our next newsletter, please add Access to your contact list. (Or move this email from "promotions" to your primary inbox.)