US Companies Show Dramatic Shift in Business Confidence for 2017
Following years of sluggish economic recovery, business leaders believe 2017 stands to usher in a long-awaited acceleration in growth. According to ‘America’s economic engine – Breaking the cycle’, Deloitte’s 2017 report on business and economic trends in the privately-held and middle-market segment, 83% of executives surveyed after the November election are confident that the US economy will improve over the next two years (compared to 65% last year). In fact, 39% of respondents expect the US economy to grow in excess of 3.5% over the next 12 months.
The executives surveyed are equally optimistic about their company’s success and performance in the year ahead, particularly across key business metrics such as employment, productivity, profits and capital investment. 78% of respondents expect revenue growth in excess of 5%.
“Our postelection survey paints a positive picture for breakout growth in 2017, pointing to a strengthening economy and potential improvement in business conditions year-over-year,” says Roger Nanney, vice chairman, Deloitte LLP, and national managing partner of Deloitte Growth Enterprise Services.
In addition, the survey revealed that two-thirds of respondents believe the US election results will boost the US economy; another 63% believe the new administration will have a positive impact on their company’s operations.
Optimism tempered by heavy dose of uncertainty
While postelection promises have buoyed confidence in the economy and in company growth among private company and middle market executives, the results also show increased uncertainty: 70% feel more uncertain than they did a year ago about the main factors driving their future business prospects.
“Certain economic and geopolitical issues are among the obstacles these executives cite in the survey,” says Bob Rosone, managing director, Deloitte Growth Enterprise Services, Deloitte LLP. “However, the respondents appear hopeful that these challenges might be addressed with policy changes by the new administration.”
According to the survey, business leaders see increased regulatory compliance (33%), keeping up with the pace of technology (33%), and rising health care costs (32%) as the top three obstacles to their company’s growth. Executives also emphasized skills shortages as a growing concern, increasing by 10 percentage points from last year as a roadblock to economic and business growth.
When asked which government measures would help their businesses grow the most over the next 12 months, the No. 1 response cited was reducing corporate tax rates; keeping interest rates low, rolling back health care costs, and supporting infrastructure needs were all tied for the next most important measure.
Technology and talent continue to drive mid-market investments
Technology yet again tops the list as the key investment priority for surveyed companies over the next 12 months. Business leaders are particularly looking to focus their technology investments on cloud computing (42%), data analytics (40%), and customer relationship management (34%). They indicated the greatest potential returns from technology investments like these may be business process improvement, employee productivity and customer engagement.
Employee development and training also continue to be a key investment, as 72% of survey respondents indicated they have difficulty finding new employees with the right skills and education. For this reason, training (47%), increasing full-time employees (44%), and increasing compensation (33%) were cited as the top investments in talent over the next 12 months.
Mid-market companies tap M&A and IPO to remain in growth mode
According to the survey, private and mid-market companies are also looking to mergers and acquisitions (M&A) and initial public offerings (IPOs) to reach their business goals. While global M&A and IPO activity slowed sharply in 2016, more companies from the survey expect to pursue deals and go public in 2017.
More than half (53%) of the companies surveyed say they will likely pursue M&A as an acquirer, up from 39% a year ago. Furthermore, 45% of companies say they will likely be an M&A target, up from just 21% last year. Two of the main factors that respondents believe will drive M&A activity in their company over the next 12 months are increased availability of capital and renewed confidence in the economy.
As for pursuing an IPO, 28% of companies reported that they would likely go public in the next 12 months, nearly doubling the number of companies from last year (15%). Reasons cited include broadening the exposure of the company’s brand and products, the cost-effectiveness of equity capital, and the need for additional capital to fuel growth.
Companies look to global markets to help address challenges
The survey reiterated the importance of the global economy as US mid-market companies are increasingly looking overseas to expand their operations, boost their productivity, and develop new products and services.
More than half of the companies surveyed expect to increase their revenues generated outside of the US, with 29% predicting revenue increases between 26 and 40% over the next 12 months. Canada, Western Europe, and Asia Pacific are expected to be the top three contributing markets. Additionally, nearly 60% of mid-market companies expect to have 11% or more of their workforce outside the US, compared to 42% currently. This will be an important trend to follow as the skills gap consistently emerges as a growing concern.
“As mid-market companies plan for overseas expansion and closing the skills gap, new policies and regulations around trade could have a significant impact on economic activities abroad,” concluded Nanney. “The good news is that companies in this segment are confident and looking for opportunities to improve their businesses in an ever-changing landscape.”