Uncertainty over economy remains, but corporates are hopeful for a global turnaround, says Andrew Skipper

After five years of economic crisis, have companies across the globe finally come to terms with a new unsettled economic landscape?

Recent research from Hogan Lovells estimates that the top 500 global non-financial companies have roughly £2.5trn ($4trn) of cash sitting on their balance sheets. But in another survey by the firm – of 160 board level executives at global listed companies across UK, Europe, Asia and the US – almost nine in 10 companies identified economic uncertainty as a key barrier to investment. 

Despite its headline-grabbing status, 40% of senior executives said that the eurozone crisis was having no significant impact on their plans for growth and only 8% of companies said that they are becoming more cautious about investing in parts of Europe. 

While the economy is – and will remain – a driver of uncertainty, the issues which arise out of the current climate, including the threat of increased regulation and government intervention, are increasingly critical.

The survey also indicates that many senior executives are cautiously optimistic, even if that optimism is tempered somewhat by pragmatism and a realisation that there will be no easy return to the rapid growth years up to 2008. If the circumstances are right, then there is clearly an appetite for M&A. But a landscape of increased government intervention and regulatory constraints is unsettling many potential investors.

The uncertain nature of the existing economic landscape is not new. What does appear to be new, however, is an appreciation by companies that this uncertainty is not a passing phase. 

It may be accurately described as a key feature of the global economic times – the 'new normal' and they have therefore had to develop a roadmap to M&A success through managing the challenges of the current environment, looking something like this:

Stick to what you know

As nearly 90% of companies in the survey expect to witness growth in their existing markets in the next few years, corporate attention is firmly focused on increasing growth in existing businesses. Though nearly 60% of companies are planning for entry into new geographical markets, this is tempered by conservatism, as 56% are looking for acquisitions in the domestic markets which they know and understand.

But M&A remains a potential engine of expansion with three fifths of respondents seeking opportunities to acquire businesses at relatively low prices. 

The eurozone is a particular area of concern, with a third of companies indicating that they are mitigating their exposure to the crisis and undertaking contingency planning for business disruption and currency conversion. Similarly, while less than a third are making changes in business relations and hedging financial risks, almost a quarter of those surveyed plan to hold more cash to offset potential reductions in cash flows.

Focus on internal