52% of manufacturing executives reconfigure supply chains in the face of Covid-19

Supply chains are the greatest priority for global manufacturing leaders with the pandemic likely to lead to major long-term changes

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An EY survey has found that the pandemic will have a massive effect on global supply chains as 97% are analysing their supply chains. More than half (52%) of global sector executives are taking steps to reconfigure supply chains and a further 45% reported to the survey that they are re-evaluating their supply chain processes.

"Manufacturers are working rapidly to limit the impact of the already tragic human cost of COVID-19 on livelihoods. The first step is going to be tackling supply chains, which have been left dangerously over-exposed in many industries,” said David Gale, EY Global Advanced Manufacturing Transactions Leader. "As this unfolds, we can expect a shrinking of supply chains for the long-term, with more key components made locally. The term 'unprecedented' can be overused, but I think it is perfectly apt in this situation."

COVID-19 is also shaping global manufacturing leaders' strategy when it comes to the management of people and processes. More than two-thirds (69%) are already taking steps to change the way they manage their workforce or are re-evaluating their current approach. Meanwhile, the speed of automation and digital transformation in the sector is set to increase considerably, with more than two-thirds of manufacturers evaluating or already taking steps toward transformation on both fronts (78% and 67%, respectively).

The EY Global Capital Confidence Barometer (CCB) also found that most manufacturers expect hostile M&A activity to rise on the back of lower valuations and a majority (53%) expect a "U-shaped" recovery extending into 2021.

In previous versions of the CCB, high valuations were called out as a barrier to M&A activity in the manufacturing sector. That is expected to change. The vast majority of those polled (82%) expect an increase in hostile and competitive M&A activity in the wake of the crisis. At the same time, 47% of respondents predict a drop in valuations, which is likely to increase competition for targets.

The survey also shows an expectation that the crisis will reshape what is considered an attractive target, with nearly a third (32%) saying they will prioritize business resilience when evaluating a transaction.

"M&A drivers on both sides of manufacturing deals are likely to be transformed in the post-COVID environment,” noted Gale. “Sellers are looking to rebuild depleted cash reserves, while buyers may be looking for a bargain with valuations dropping. Any buyer, however, will be looking closely at the resilience of a business when it comes to assessing a deal in the post-COVID world.

"We can certainly expect a more hostile environment in the coming year, and perhaps beyond, which will see as much activity from private equity as it will from corporate buyers."

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