Pandemic intensifies margin pressure on automotive suppliers – sales expected to decline globally by 15 to 20 percent in 2020

Press releases   •   Nov 25, 2020 19:55 -12

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  • EBIT margins fell to a historic low of 1.7 percent in the first half of 2020
  • Car sales in North America and Europe expected to reach pre-crisis levels only after 2026
  • Suppliers must balance restructuring and strategic realignment

Munich/Frankfurt, November 2020: Electromobility, autonomous driving and digital transformation of cars: Technological change continues to put pressure on margins of automotive suppliers. The Covid-19 pandemic has further intensified this trend. As a result, this year's global sales are expected to slump by an average of 15 to 20 percent compared to 2019. Suppliers’ average EBIT margin fell to 1.7 percent in the first half of 2020. The pandemic’s effect on automotive suppliers is revealed in the "Global Automotive Supplier Study 2020" from Roland Berger and Lazard. The study analyzes performance indicators of approximately 600 suppliers around the globeto assess the current state of the industry, as well as trends and challenges.

"Despite difficult underlying data, a brighter year-end is emerging. Automotive suppliers are able to stabilize financially, mainly thanks to the rapid recovery process in China," says Felix Mogge, Partner at Roland Berger. "However, many suppliers lack the capital for the necessary technological transformation following the slump.”

Poor key figures affect creditworthiness

Overall, the coronavirus shock will affect the automotive industry for a long time to come. The peak volume of global vehicle sales that was reached in 2017 (94.3 million) is not expected to be met again until 2026. In Europe and North America, it will take even longer while China and South America will recover more quickly, according to the report.

Together with poor key financial indicators, these forecasts may have a negative impact on the creditworthiness of automotive suppliers. "In 2019 we already observed banks becoming more restrictive in their credit financing," says Christof Söndermann, Managing Director at Lazard. "In recent months, many suppliers were confronted with rating downgrades. This increased financial pressure further."

Lessons from the post financial crisis era 2008/09

The current situation can be compared to the global financial crisis in 2008 and 2009. In the period that followed, some automotive suppliers benefited more than the average. "We identified four general characteristics that were crucial to success after the financial crisis," says Felix Mogge. "Suppliers can use these to orient themselves and gain a better position in the market based on clear strategic guidelines."

One characteristic that will distinguish the winners from the losers of the coronavirus crisis in coming years is consistent market and technology leadership in every business area. Another is strategic coherence, which includes having a coherent product portfolio that allows for the realization of synergies. The third characteristic is the achievement of a critical company size to ensure sufficient access to the capital markets. Finally, winners will demonstrate consistent implementation of their strategic decisions and a performance-driven corporate culture.

Balancing act between restructuring and strategic realignment

Technological change and the effects of the Covid-19 pandemic will continue to impact the margin performance of automotive suppliers for the foreseeable future. "The challenges of the coming years will structurally overwhelm many suppliers," predicts Felix Mogge. "As a consequence, we will see greater consolidation in the industry." In order to be among the winners in this environment, automotive suppliers must strategically develop their business and at the same time significantly reduce costs.

"An automotive supplier’s CEO and management team have to walk a fine line: On the one hand, they have to consistently restructure or exit their commodity activities, while on the other hand, they must take risks with intelligent capital spending to develop new areas for future profitable growth," says Christof Söndermann. "We therefore expect to increasingly see strategic cooperations in order to achieve relevant scale or to get access to new technology more quickly."

Roland Berger

Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 35 countries, we have successful operations in all major international markets. Our 52 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 250 Partners.

Lazard

Lazard, one of the world's preeminent financial advisory and asset management firms, operates from more than 40 cities across 25 countries in North America, Europe, Asia, Australia, Central and South America. With origins dating to 1848, the firm provides advice on mergers and acquisitions, strategic matters, restructuring and capital structure, capital raising and corporate finance, as well as asset management services to corporations, partnerships, institutions, governments and individuals. For more information on Lazard, please visit www.lazard.com. Follow Lazard at @Lazard.

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The traffic of the future is taking off: Air taxis open up huge market potential

Press releases   •   Nov 09, 2020 20:19 -12

  • Market volume of USD 90 billion a year and 160,000 air taxis expected by 2050
  • Investments increase more than twenty-fold in the first half of 2020 compared to 2016 – despite corona crisis
  • More than 110 cities around the world are working on Urban Air Mobility solutions

Munich, November 2020: In the coming years, air taxis will supplement private transport in urban areas. The first cities are already testing and planning this future: Demo flights have been conducted in Guangzhou, China, since 2018; the first aircraft are scheduled to transport people around the Olympic games in Paris, France, in 2024; and test flights are soon to be performed in Dallas, USA. The segment of manned Urban Air Mobility (UAM), or the expansion of urban transport systems into the airspace, is expected to reach an annual market potential of USD 90 billion by 2050. This is shown by Roland Berger in their latest study "Urban Air Mobility - USD 90 billion of potential: How to capture a share of the air taxi market”.

"We estimate that there will be about 160,000 commercial air taxis in the air by 2050," predicts Manfred Hader, Partner at Roland Berger. "Companies that produce cars, planes or helicopters today, as well as newcomers, can tap into a large market if they position themselves accordingly in the coming years.” Roland Berger's experts expect dynamic growth, especially between 2030 and 2050.

M
ore than 110 cities worldwide are pursuing Urban Air Mobility projects

There are already more than 110 passenger UAM projects in cities around the world. Half of these are from Europe. Startups and established companies (manufacturers of aircraft, helicopters and vehicles) are developing air taxis and services for various sectors.

Even the corona pandemic, which has shocked large parts of the global economy and the traditional aviation industry in recent months, could not ultimately harm the rise of UAM: In the first half of 2020, investments in startups in this sector totaled USD 907 million – significantly more than in the whole of 2016 (approximately USD 40 million).

Currently two developments are giving the industry a boost. "Public acceptance of the technology is growing with every test flight and the regulatory authorities in Europe and the US are now dealing with the issue so seriously that legal hurdles can be overcome in the foreseeable future," says Dr. Stephan Baur, Principal at Roland Berger.

Looking to a promising future

In order to generate valid figures on future development, the authors of the study collected data from 1,200 major cities and cumulated them into four business model archetypes. They conclude that three different areas of application can be identified for the future: City Taxis with a range of 15 to 50 kilometers, Airport Shuttles with the same range and Inter City flights that can cover distances of up to 250 kilometers. The industry is therefore likely to specialize in roughly equal parts in the production of three different types (36% City Taxi, 35% Airport Shuttle, 29% Inter City).

However, the margins that can be achieved with these respective air taxis differ significantly: "By 2050, Airport Shuttle and Inter City services together will take the lion's share, about 90% of revenues," says Manfred Hader. As early as around 2025 the first providers will enter the market and offer these services. "As a result, we expect a transition to a premium model of public transport in which UAM services will become increasingly similar to today's taxi services".

But not only air taxi manufacturers will get a piece of the 90-billion-dollar pie. An entire ecosystem is growing around UAM. As a result, the market will become more disparate and lead to a number of different business models in various sectors. "It goes far beyond the pure air taxi – the market is growing alongside the infrastructure, which includes airfields, services, flight operations, ticket brokerage and repairs," says Dr. Stephan Baur. "At the moment we assume that air taxi manufacturers – similar to the automotive industry – will initially dominate the market. In any case, companies must clearly position themselves in this new ecosystem".

To know more on this topic, you can download the study here

Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 35 countries, we have successful operations in all major international markets. Our 52 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 250 Partners.

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Roland Berger boosts its ranks with eight new Partners in China, Germany, France, Middle East, Austria and Switzerland

Press releases   •   Nov 08, 2020 20:04 -12

Munich, November 2020: The Roland Berger partnership has strengthened its ranks internationally. With the appointments of Alexander Eppler(Hamburg), Niko Herborg (Frankfurt), Daniel Hirsch (Stuttgart), Romain Lucazeau (Paris), Faris Momani (Zurich), Gundula Pally (Vienna), Feroz Sanaulla (Dubai) and Jun Ye (Shanghai), the consultancy is sending a clear growth signal even as the global pandemic continues.

Alexander Eppler, Niko Herborg and Romain Lucazeau are already with Roland Berger and their promotion to Partner takes them to the next stage in their career progression. The other individuals are joining the consultancy upon their appointment. Gundula Pally will assume an extended management role in Austria as Managing Partner, taking the helm of the Vienna office alongside Roland Falb. All of the new Partners specialize in different areas of expertise and will bring their experience to bear for the benefit of the Automotive, Civil Economics & Infrastructure, Consumer Goods & Retail, Financial Services, and Restructuring, Performance, Transformation & Transaction Competence Centers.

"With these newly appointed Partners, our partnership gaining a group of people who are successful entrepreneurs as well as highly competent and seasoned experts in their field. Each of them will contribute to the success of Roland Berger worldwide. I congratulate all of them and I am delighted to welcome them into the partnership," says Stefan Schaible, Global Managing Partner Roland Berger. "In these times of Covid-19, as the pandemic pushes society and the economy to the limits, we strive to be by our clients' side with help and support. Because what businesses and institutions need right now is good advice in the form of creative solutions that add measurable value. We are already extremely well placed to provide this, and our new colleagues will help us strengthen the strong foundations on which we stand."

Images of the new Partners are available here: https://rolandberger.mynewsdesk.com/latest_media

Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 35 countries, we have successful operations in all major international markets. Our 52 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 250 Partners.

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Global rail market grows despite COVID-19

Press releases   •   Oct 01, 2020 18:21 -12

  • World market for rail technology reaches a new record high of EUR 177 billion in 2019
  • COVID-19 pandemic leads to losses in 2020 (-8%) but stable growth is expected again by 2025
  • Trade restrictions and lack of market access pose risks to European suppliers

Brussels/Munich, October 2020: The global market for rail technology has survived the COVID-19 pandemic relatively unscathed and will emerge from the crisis stronger in the medium term – despite an 8% slump in 2020. This is the assessment of the "World Rail Market Study: Forecast 2020 to 2025", which Roland Berger conducted on behalf of UNIFE, the Association of the European Rail Supply Industry.

"The rail transport market has been hit by the pandemic, which has temporarily interrupted the strong growth that we were experiencing. Nevertheless, after a challenging 2020 we are confident that the various stimulus plans together with the increasing demand for sustainable mobility solutions will lead to a solid market recovery, translating into a 2.3% compound annual growth rate between the periods 2017-19 and 2023-2025," said Henri Poupart-Lafarge, Chairman of UNIFE, and Chairman and CEO of Alstom.

Record volume of EUR 177 billion
A record market volume of EUR 177 billion was reached at the end of 2019, proving the appeal of rail transport in all of its forms, ranging from urban metro to commercial freight. The sector has grown by 3.6% annually since 2017. The strongest driver was the rolling stock segment (up 6.8%), followed by rail control solutions (up 4.1%) and the infrastructure market (up 2.3%). By comparison, growth in the services market was rather moderate at 0.9%.

The "installed base" (i.e. the number of vehicles in operation and the existing route network) has also seen steady growth. Since the last assessment (2018), the global rail network has been extended by 23,300 kilometers and the number of vehicles has increased by 20,000 units.

Looking at the global distribution of growth, it becomes clear that, "the Asia-Pacific region and Western Europe made the largest contribution to the positive development of the entire market with 5.3% and 3.8% respectively," as Andreas Schwilling, Partner at Roland Berger, explained. Compared to the last study, only the Africa/Middle East market showed a slight decline (-1.2%), while all other markets grew.

Positive medium-term outlook
The experts estimate that the market will develop positively in the medium and long term, with an average annual growth rate of 2.3% until 2025 despite an 8% decline in 2020 caused by the COVID-19 crisis. The total market volume is expected to reach EUR 204 billion by 2025. This assumption is based on a rapid recovery of the market, which the authors consider probable under the so-called V-case scenario.

Different global developments are likely to continue to fuel rail market growth in the future. "Megatrends such as urbanization, global population growth and growing environmental awareness will lead to higher passenger numbers, while digitalization and automation will make the rail sector more attractive," said Andreas Schwilling. He added that the increasing environmental awareness shown by political programs such as the European Green Deal, the planned shift of traffic to railways and the inevitable expansion of public transport in major cities would also guarantee the positive development of rail. However, public funding will need to be ensured and sustained to achieve that progress.

International trade barriers as a threat to growth
International trade barriers, such as shrinking accessibility in Asian markets, have developed into serious impediments to rail sector growth, the study warns.

As a result, the share of the world market for railroad technology that remains accessible to European companies has shrunk slightly from 63% to 62% since the 2018 study. A market volume of EUR 67.1 billion remains unattainable for European companies and this could be worsened by the current economic downturn.

"The market should be equally open to all rail suppliers, whether domestic or foreign," stated Philippe Citroën, Director General of UNIFE. "A level playing field is crucial for efficient rail systems, and we call on institutions to ensure that competition is fair as a means of preventing any further decline in market accessibility."

An executive summary of the "World Rail Market Study: Forecast 2020 to 2025" can be downloaded using this link.

Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 35 countries, we have successful operations in all major international markets. Our 52 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 250 Partners.

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Market for digital healthcare set to grow to EUR 232 billion by 2025

Press releases   •   Sep 30, 2020 18:55 -12

  • Digital healthcare to see almost 50 percent growth in the wake of the Covid-19 pandemic
  • Patients with preexisting conditions trust small-to-medium-sized platform providers the most
  • Partnerships of specialized platforms offer promising opportunities for all market participants

Munich, October 2020: Before the Covid-19 pandemic hit, many patients were very skeptical about seeing their doctor via video consultation or sending data to healthcare providers electronically. This attitude is changing as people grow accustomed to using digital products and services. And that is creating growth in the digital healthcare market. These are among the findings of the latest Roland Berger study, "Future of Health 2 – The rise of healthcare platforms", which canvassed the opinions of some 500 experts worldwide.

Anticipated market growth is almost 50 percent higher than the expectations expressed in the previous year's study, with Europe's digital healthcare market now forecast to grow to EUR 232 billion by 2025. The German market is predicted to be worth EUR 57 billion. Experts believe the pandemic will accelerate the process of digitalization in the industry by about two years. "This year's study findings are significantly more optimistic than last year's," notes Karsten Neumann, Partner at Roland Berger and one of the study authors. "We therefore expect this market to be very dynamic, with merger and acquisition activity predicted in the coming years as a result."

Good opportunities for specialized platform operators

The faster pace of growth brought by the pandemic is acting on a market that is highly fragmented. On the one hand you have big tech – companies with vast quantities of data at their disposal – jostling for position. And then there are also many smaller providers bringing to market apps and specialized solutions for certain indications, like diabetes. In 2019, 61 percent of experts were of the opinion that tech companies would definitely be an integral part of the healthcare system in the period through 2025. The latest survey results, however, reveal that only ten percent of patients with preexisting conditions would entrust these companies with their data. "We can therefore see greater opportunities for companies and platform providers from within the healthcare system, who would be acting as interfaces, combining virtual and physical services alike," says Neumann.

Providers of outpatient services will also need to adapt to the new platform models. If they do not, they run the risk of being marginalized or even forced out of the market in the medium term. Some 64 percent of survey respondents foresee a change in the business models for outpatient services. "It's important for providers to set themselves up now for what's to come," advises Karsten Neumann. "They need to consider which platforms could be a threat to them, or where and what network they should expand their own business model into."

Platforms already successful internationally

New players are also entering the market with adapted business models. Startups are intensifying competition in all of the associated industries – from big pharma to insurance companies and from service providers to other startups and tech firms. "More and more companies are specializing. That means, by definition, that they need to be interconnected, if only to be able to offer an end-to-end user journey," explains Neumann. "Relevant partnerships that benefit all involved parties will be a key success factor going forward."

This trend is underlined by a range of practical examples. There's an insurance company in Mexico that's already bringing 22,000 providers together with more than 250,000 patients on a single platform. A Chinese company offers another platform that consolidates large datasets, online appointments and various different health programs. And in Saudi Arabia, platform integration is already part of the overall healthcare system. If European companies want to keep up with these frontrunners, they'll need to redefine their strategies. "A platform strategy offers every opportunity for market players of all kinds. This will not be a 'winner takes all' scenario," says Neumann.

You can download the full study here:

https://www.rolandberger.com/en/Publications/Future-of-Health-The-rise-of-healthcare-platforms.html?country=WLD

Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 35 countries, we have successful operations in all major international markets. Our 52 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 250 Partners.

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Europe's steel industry must invest over EUR 100 billion in CO2 reduction

Press releases   •   Apr 28, 2020 18:54 -12

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  • Technology transition needs to start within the next 5-10 years to meet European climate targets by 2050
  • Steel industry currently emits around 22 percent of industrial carbon emissions in the European Union
  • Hydrogen-based technologies are key to successful transformation
  • Financial viability and international competitiveness depend on state support, all the more given the fatal impact of the Covid-19 crisis

Munich, April 2020: Europe's steel industry is under pressure. The steel-producing sector is currently the largest industrial CO2 emitter in Europe, accounting for 22 percent of total emissions. At the same time, the European Union has resolved to become climate neutral by 2050 in order to comply with the Paris climate agreement. With the methods currently applied to make pig iron and steel, this target will not be met. Companies must therefore convert their production to a new, large-scale and, above all, climate-neutral technology. And time is pressing. Because there are only five to ten years left to decide which new technology to invest in – and the transition has to be completed within 30 years. Roland Berger's new study "The future of steelmaking – How the European steel industry can achieve carbon neutrality" evaluates possible technologies and shows how the transformation can succeed.

"Europe's steel industry will need to invest heavily if it is to reach the EU's climate targets. We calculate that it will cost around EUR 100 billion just to take the production of crude steel from iron ore and make it climate neutral," says Akio Ito, Partner at Roland Berger. However, even this sum could be understated, as global crude steel production is growing and is set to be between 30 and 50 percent higher by 2050. "If companies have to bear the investments alone, they will no longer be able to offer the steel at competitive prices in an already highly competitive market, and that's if they can finance the transformation at all," warns Akio Ito.

Hydrogen-based processes technologically advanced

For the steel industry, there is as yet no conclusive answer to the question of which is the right technology solution for extensive CO2 reduction. Carbon emissions could be reduced by a combination of carbon storage and partial use of biomass in the blast furnace, for example, but not to zero. Other options such as plasma direct steel production or electrolytic reduction processes are at a very early stage of development. That brings great uncertainties for industrial application. "We have examined a range of processes to assess their technological availability, feasibility in large-scale plants and economic viability," says Bernhard Langefeld, Partner at Roland Berger. "In our opinion, hydrogen-based direct reduced iron (DRI) is the most advanced method and – as soon as there is enough green energy available – makes the most sense from a climate perspective.

However, hydrogen-based reduced iron processes cannot be implemented for steel production overnight. Hydrogen production requires very large amounts of energy. "The total energy requirement for climate-neutral steel production amounts to about 120 terawatt hours (TWh) per year," says Bernhard Langefeld. By way of comparison, the world's largest hydrogen electrolysis plant is currently being planned in Hamburg. It can generate just under 1 TWh per year when operating at optimum performance.

Political support needed

The steel industry cannot proceed with developing these capacities for hydrogen electrolysis from renewable energies and corresponding DRI furnaces without risking the competitiveness of its end products. The share of European steel production in the world market has already fallen significantly in recent decades. "Without political support, it is very likely that large parts of the value chain will be shifted from Europe to countries with cheap energy and less regulation," warns Akio Ito. In addition to the potential negative consequences for Europe's steel industry, this would mean that global steel production would continue to be very carbon intensive and thus harmful to the climate.

The EU should therefore take action itself to ensure, among other things, that imported steel and imported steel products meet the same regulatory requirements as domestic production or are taxed accordingly in the future. In addition, a clear framework must be agreed upon to secure the necessary investments long term. "The EU or individual governments should offer such additional tax breaks, subsidies and financing as are necessary to enable steel producers to make the switch. The aftermath of the Covid-19 crisis will add to the financial stress of European steelmakers, making stimulus packages to support green steel transformation even more an imperative," advises Akio Ito. 

Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 35 countries, we have successful operations in all major international markets. Our 52 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 250 Partners.

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Roland Berger Partners count on continuity in vote for new management team and agree consulting package for the corona crisis

Press releases   •   Mar 27, 2020 03:53 -12

  • With new management, Roland Berger is capitalizing on proven minds from all established consulting fields and regions.
  • Supporting customers in current crisis and reactivating economic performance are the focus of consulting approaches.

Munich, March 2020: On March 27th, as scheduled, the approximately 250 Roland Berger Partners from 35 countries elected a new management and supervisory board at the first purely virtual Partner Meeting in the company's history. In light of the corona pandemic, the Partners also agreed a comprehensive consulting package to support clients during the current crisis. The focus of the package was predominantly on the question of how to reactivate economic performance in a controlled manner. In the western world, this will have to take place at a point in time when the corona virus has not yet been completely defeated.

The new Board of Managing Directors, elected for a four-year term, consists of, Marcus Berret, Denis Depoux and Stefan Schaible – all proven faces from the current leadership team. Stefan Schaible will assume the function of Global Managing Partner and Spokesman of the Board of Managing Directors. The Board of Managing Directors and Roland Berger's newly elected Supervisory Board, which consists of Laurent Benarousse, Sascha Haghani, Robert Henske, Yvonne Ruf and René Seyger, represent the diversity of the consultancy across all established fields of expertise and regions.

Stefan Schaible, Global Managing Partner and Spokesman Board of Managing Directors, views the fast and proactive support of customers in the current situation as the consultancy’s top priority: “The spread of the coronavirus is putting our societies and the global economy through an unprecedented test. The protection of the population, in particular of at-risk groups, is the first priority. That is why the worldwide ban on contact and the rescue measures for companies are absolutely the right move. However, the question of how we can boost economic output in a controlled manner is already an important one. In concrete terms, this means protecting the workforce in such a way that production and services can be broadly resumed. This requires a social tour de force in terms of the availability of corona tests, protective suits, breathing masks, disinfectants etc. and the rapid implementation of corona-compatible work processes. German companies with their excellent production know-how are called upon here to first supply the health care system in full and then gradually enable other companies to ramp up their operations. We are contributing to this with our “protected ramp-up” approach, which focuses on human and economic factors.”

Thanks to its broad setup of industries, Roland Berger is currently providing many clients with acute support in response to the economic impact of the corona pandemic. These days, many companies are setting up so-called Emergency Rooms and 360-degree check-ups. Ad hoc measures are primarily aimed at avoiding liquidity shortage, securing the confidence of investors and banks, and, if necessary, securing government aid. With its proven experience in restructuring and corporate performance improvement, and its established industrial expertise in key industries, Roland Berger advises on sensitive decisions that safeguard business, enabling companies to cut costs in the short term while maintaining their growth potential. The services described above are available remotely, as is appropriate to the situation.

Roland Berger's globally integrated consulting fields allow it to bring together impressions from international market and industry trends. With analyses on the economic impact of COVID-19, the consultancy is outlining possible scenarios and helping companies assess the consequences of the crisis. Based on these findings, companies work with Roland Berger experts to develop industry-specific, regional solutions for acute operational challenges and define responses to medium-term changes in the business environment, ensuring that competitiveness can be secured sustainably.

Photographs in printable quality can be downloaded from https://rolandberger.mynewsdesk.com/latest_media

Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 35 countries, we have successful operations in all major international markets. Our 52 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 250 Partners.

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The PE sector focuses on the further development of portfolio companies: Sustainable business models are becoming increasingly important

Press releases   •   Feb 24, 2020 19:31 -12

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  • Companies see sustainability as an increasingly relevant criterion for their portfolio management
  • 70 percent of experts are preparing for an economic downturn in Europe
  • PE professionals consider the markets in Scandinavia, Italy and Greece to have the most promising outlook in 2020

Munich, February 2020: The issue of environmental sustainability is having an increasingly concrete impact on investment behavior in the private equity industry. Among the most important criteria for portfolio management, this topic has the highest increase (5%) compared to the previous year and thus ranks among the top five portfolio value creation measures. This is one of the core findings of the "European Private Equity Outlook 2020", for which Roland Berger surveyed around 2,500 PE experts across Europe.

"Investors' increased attention on environmental sustainability not only reflects the strong public sensitivity to environmental issues," says Sascha Haghani, Member of the Global Executive Committee and Head of Restructuring, Performance, Transformation & Transaction at Roland Berger. "Today, the climate compatibility of an investment portfolio is also a key factor for the value of assets.”

Weak economy leads to investments in cyclically resilient companies

Overall, the industry is cautiously optimistic about 2020, with around a third of those surveyed expecting no change in M&A transactions with PE involvement compared to the previous year, while 29 percent expect a slight increase. However, 42 percent of those surveyed expect the European economy to decline slightly; more than two thirds of PE professionals (70%) are preparing for a potential economic downturn.

"Investments in stable companies that are less susceptible to economic fluctuations are considered to be the most effective measures to prepare for a downturn," says Christof Huth, Partner at Roland Berger. The focus of activities is therefore also on consolidating portfolios. The low interest in new business may also be due to the valuation of the markets; 94 percent of PE professionals currently consider the market to be overvalued.

Big differences between regions

The forecast development of the PE market differs significantly between regions. For example, M&A activity in Scandinavia is expected to grow by 2.3 percent compared to 2019. The experts also anticipate a catch-up effect for Italy and Greece, with growth of 1.5 and 1.4 percent respectively. Great Britain, DACH and France are expected to remain stable in 2020.

The sectors with the highest expected M&A transactions with PE involvement have not changed fundamentally compared to previous years. In 2020, most experts (90%) expect Technology, Software & Media to take the lead, followed by Pharma & Healthcare (81%) and Business Services & Logistics (59%). At the bottom of the scale are the automotive (7%) and construction industries (11%).

"Investors continue to be particularly interested in companies with innovative technological approaches from which they expect high growth rates in the coming years. In addition, small and medium-sized companies in particular are still considered promising targets in 2020," explains Christof Huth.

Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 34 countries, we have successful operations in all major international markets. Our 50 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 230 Partners.

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Investments in AI startups rise to USD 4.7 billion in Europe in 2019

Press releases   •   Feb 10, 2020 20:00 -12

(Study Download)

  • Total investments more than double since 2018
  • Europe's leading countries are France (USD 1.3 billion) and the UK (USD 1.2 billion)
  • AI ecosystem in Europe much more fragmented than in China or the US
  • Brexit adds complexity

Munich, February 2020: Within the European AI ecosystem, the UK recorded the most new startups in 2019. In terms of investments made, France is in pole position with USD 1.3 billion, followed by the UK (USD 1.2 billion), Israel (USD 902 million) and Germany (USD 510 million). The total volume of investments in the European AI ecosystem rose by around 50 percent over 2018 figures. This is one of the findings of the study entitled "The road to AI – Investment dynamics in the European ecosystem" published by Roland Berger in collaboration with France Digitale, Europe's biggest association for startups, which unites 1,400 digital startups and more than 100 investors. The study encompasses 28 European Union Member States (including the UK) plus Norway, Switzerland and Israel.

"Many of the developments are very positive – they show that Europe's AI ecosystem is still experiencing strong growth," says Jochen Ditsche, Partner at Roland Berger. "But compared to China and the US, Europe's AI ecosystem is too fragmented and suffers from a lack of integration." He goes on to say that Brexit could exacerbate these problems.

Chinese investors underrepresented
France, the UK, Israel and Germany accounted for a good 80 percent of investments in the period 2009 through 2019. American investors are well represented among the top five sources of overseas funding in each of the countries: Last year US investors accounted for 17.5 percent of foreign funds in the UK, 14 percent in Germany and 7.5 percent in France. Chinese investors, on the other hand, are barely present at all. Europe's AI ecosystems still depend strongly on domestic investors.

"The funding of AI startups only really began to pick up pace in 2014," explains Emmanuel Touboul, Managing Director of Roland Berger Tech Ventures in Paris. "Since then, annual growth rates have been in excess of 50 percent." In concrete terms, a mere USD 528 million of funding was invested in AI startups across all of the countries in 2014 – not much more than was invested in Germany alone in 2019.

Europe is overly fragmented
In spite of the strong growth in Europe, there is still a lack of coordination between the individual countries across the continent. For example, a European patchwork of approaches has emerged out of all the different interpretations surrounding the General Data Protection Regulation. "Europe cannot be allowed to continue to get lost in details," says Emmanuel Touboul, sounding a warning note. "We need a strategy that safeguards the free flow of data, creates synergies between countries and balances out the nations' different strengths and weaknesses with regard to patents, infrastructure, investment capacity and skills shortages."

The UK plays a key role in Europe's AI ecosystem. In a country-by-country comparison, the UK spends the most on research and development and files the most patents. "Brexit could hinder access to data even more and endanger Europe's innovation and dynamism across the entire continent," cautions Jochen Ditsche. "That is why we need to make sure there is a comprehensive and forward-looking framework in place between the EU and the UK so that digital entrepreneurs and investors can continue to operate in a growth environment."