Opportunities await the fit

STEVE MUNCEY, senior partner for KPMG in East Anglia, looks at what lies ahead for local businesses as Britain emerges from recession

THE official figures confirm that, overall, the economy is now 5% smaller than it was a year ago and the move out of recession looks like being a slow one.

The Economist Intelligence Unit forecasts UK economic growth of an anaemic 0.7% in 2010 and 0.9% in 2011.

So how can companies in the region achieve growth in what is likely to be a flat economic environment?

Despite the conditions of the last two years, businesses will have learned some vital lessons – not least around managing costs. Now is not the time to take your eye off the ball. Many businesses will have undergone “quick fix” measures, not really planning for the long-term, which could leave them too lean and ill-equipped to cope with changing conditions that may present revenue opportunities. Having looked at cost as a short-term fix, it is important that companies try now to understand how to optimise long term costs, thereby creating a sustainable competitive advantage.

Our latest research shows that the merger and acquisition market will improve this year as companies which have emerged leaner and fitter will be looking for growth opportunities, while overstretched and weakened companies will become targets for consolidation.

The research shows that forward price to earnings ratios are now 7% higher compared with last year’s adjusted figure, suggesting a gentle increase in appetite for deals. These will not be the feverish, debt-fuelled private equity transactions of 2007, but will be driven by industrial logic and conservative financing structures, with limited amounts of new debt and equity going to deserving companies.

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While UK markets may offer limited growth potential, aspirational businesses may look for overseas opportunities Indeed, more than two thirds (68%) of SMEs that we recently surveyed indicated that international business was a critical part of their strategy, both in terms of attempting to minimise the effects of the economic downturn and building a strong platform for future growth.

With businesses experiencing the loss of key customers and suppliers over the last 12 months, it comes as no surprise to see a many turning their attentions to the international markets for new sources of revenue. Whether it is ramping up their import and export business, or expanding into new territories, cross-border activity is increasingly being viewed as an integral part of company strategy. Taking advantage of these opportunities will be important in sustaining business confidence levels.

Much has been learned over the course of the last two years; attitudes to debt have changed and businesses have been forced to get back to basics. This could in the long run be a blessing as leaner, more debt-averse businesses look forward to new growth and new markets opening up to them.