Dive Brief:
- More than 75% of companies are experiencing either financial or operational stress or a riskier, more troubling state of distress in the wake of COVID-19, a global survey of publicly traded companies with at least $100 million in annual revenue found.
- The pandemic fueled jumps of more than 40% in the number of troubled companies from the previous year, which is expected to drive companies to seek legal protection, especially in North America, which has a well-developed bankruptcy process, according to the Boston Consulting Group (BCG) survey.
- The automotive, travel and retail industries are hardest hit. These sectors have seen stressed companies jump by more than 50% and distressed companies by at least 16%. Less impacted are the biopharma, technology and delivery sectors.
Dive Insight:
"The COVID-19 pandemic is causing deep, structural changes that are likely to be long-lasting," Luke Pototschnik, BCG senior partner, said.
The impact has been most severe on companies that were already challenged when the pandemic hit, the survey suggests.
The automotive industry's struggle, in particular, has worsened. "Even before the pandemic, it was dealing with significant changes such as the shift to electric vehicles, which requires investment," Pototschnik said. "But in the pandemic economy, investment may be hard to come by."
Oil and gas is another sector with compounded troubles. "Bankruptcies are likely to continue," the report said, "with over 57% of the sector under stress and over 10% in distress."
Most of the retail sector has moved from stable to stressed, with more than half of companies reporting financial or operational stress. Grocery stores are retail outliers, having mostly stayed stable.
The tech sector is divided by winners and losers. IT services is increasingly stressed and distressed, while digital services and devices are still stable, reflecting the shift away from on-premises systems to remote, cloud-based work.
Similarly, shipping and other delivery companies have remained stable, driven by the shift to ecommerce.
Survival strategies
The report identified survival steps for companies based on lessons learned from resilient companies:
- Invest in projects that generate short-term cash to fund long-term investments.
- Increase the pace of innovation.
- Streamline the organization to maximize efficiency and capitalize on digital.
- Build crisis management and scenario planning capabilities.
"Companies that took these steps during the 2008–2009 financial crisis recovered faster and performed better than their peers," Pototschnik said.
