The Disruption Dilemma: KPMG Survey on Private and Recent IPO Company Outlook

FLYNN: “Private company leaders are contending with a mix of short- and long-term risks. Adopting AI with strong data management and trust at the forefront will help companies more effectively navigate this era of compound volatility.”

• 86% of respondents are optimistic about their future growth prospects in the short-term (next 18 months), while 87% are optimistic about their future growth prospects in the medium-term (18 months to 3 years).
• In both the short-term and medium-term, companies view a potential slowdown in innovation and technological advances (55% compared to 51%) and cybersecurity threats (53% compared to 48%) as the top disruptor concerns for growth.
  • Inflation (52%) and acquiring and retaining talent (52%) are additional short-term concerns. Comparatively, respondents are more worried about increasing energy costs (50%) and a potential recession (48%) hindering growth in the medium-term.
• AI is viewed as the top enabler of growth and investment in company sectors by far, with nearly half (46%) ranking it in the top three, followed by 5G, Internet of Things (IoT) and cloud computing.
• Outside of AI, companies see advanced data analytics (36%), global competition (29%), emerging startups and disruptors introducing new innovative products (29%) and cross-industry convergence (29%) as the biggest disruptors over the next 18 months. In the medium-term, data analytics (33%) and government incentives that can spur growth (32%) are the top two sector disruptors.
• Geopolitical issues also remain top of mind, especially with traditionally private and recent IPO companies. Overall, 52% of companies report supply chain disruptions are significant threats to growth over the next few years, followed by cybersecurity threats from state actors or state-sponsored actors (47%) and dependence on supplies and materials from other countries (47%). 

CHADWICK: “Private companies are laser-focused on adopting AI, but must be mindful of risks, governance and talent. AI’s importance is only going to grow, and having effective guardrails as you accelerate your transformation will help avoid pitfalls.” 

 -    Francois Chadwick, KPMG Global Emerging Giants Leader, Partner - Tax.

• AI’s relevance to company strategy is anticipated to grow substantially over time, with over half (55%) seeing it as very relevant in the near-term, and three-fourths seeing AI as relevant in the medium-term.
  • Companies are more likely to see significant opportunities (72%) than challenges (58%) with AI over the medium-term.
    
• Companies are divided on whether AI is leveling the playing field (47%) or is a game changer that provides early adopting innovators and disruptors with a significant competitive advantage (53%).
•  A majority foresee AI playing an important role in customer relationship management in both the next two years (62%) and next two to five years (60%), followed closely by financial analysis and reporting and supply chain optimization.
• The main challenges companies anticipate regarding the implementation of AI include data management and infrastructure (48%), followed by governance and compliance (43%), talent and skills (43%) and ethical use of AI (43%).
• While 54% of respondents have implemented at least adequate risk and compliance governance measures, only 23% are taking proactive and robust actions.
• The findings vary by type of company:
  • Recent IPOs are the most optimistic about AI opportunities in the medium-term (77%), followed by traditional private companies (73%) and emerging giants (67%).
  • Traditional private companies are most likely to view AI as a game-changer (56%) but are more likely to report significant challenges with AI adoption in the medium-term (69% compared to 58%, overall).
  • Recent IPOs are most concerned with ethical use and responsible implementation of AI (48%), while emerging giants are more likely to cite talent and skills (51%) as their main challenge.
  • Emerging giants are more likely to report taking adequate or robust efforts on risk and compliance governance (58% compared to 56% for recent IPOs and 47% for traditional privates) and are far more likely to be collaborating with industry experts on risk mitigation strategies (55% compared to 42%, overall).

MAGER: “Private companies are ready for a shift in the deal market with all eyes on interest rate expectations. Many are taking steps to prepare for a public listing, so we know the pipeline is full, we just need a couple of bellwether IPOs to lead the way.”

-    Shari Mager, KPMG US Capital Markets Readiness Leader, Partner – Advisory

• Nearly seven in 10 companies are projecting an increase in mergers and acquisitions (M&A) deal activity over the next 18 months.
  • Recent IPOs (76%) are especially bullish compared to traditional privates (65%) and emerging giants (60%).
  • Industrial manufacturing and energy, natural resources and chemicals reported the highest expectations for deal activity in the next 18 months among companies surveyed (81% and 75%, respectively). In a KPMG survey of 200 industrial manufacturing (IM) C-suite executives about their M&A expectations for 2024, IM was one of the top three areas pinpointed as targets for transactions. Separately, in addition an increase in consolidation and asset acquisition across energy, as part of the efforts to reduce carbon emissions, renewable energy saw a notable increase in investments in Q1, with an enhanced focus on solar assets^[1].
• 58% of emerging giants feel ready to issue an IPO, while 41% say they are somewhat ready.
• PE-backed companies are more concerned about disruptions in the medium-term compared to VC-backed companies. This could be due to a number of factors, including PE-backed companies being more mature and investors being more mindful of investments and thinking through external variables including interest rates, the upcoming election, available capital and more. Portfolio Companies of those PE firms would then also be affected by the concerns of their stakeholders/investors. 
  • 50% of PE-backed companies are very concerned about a potential economic recession, compared to 41% of VC-backed firms.
  • 47% of PE-backed companies are very concerned about severe weather events due to climate change, compared to 35% of VC-backed firms.

FLYNN: “Reporting expectations are always evolving. Regulatory requirements may vary for private companies compared to public, but it’s important to understand the expectations of stakeholders to build trust through reporting.” 

• Looking beyond financial statements, 66% of respondents rank cybersecurity risk as the most relevant area of reporting or disclosures across sectors, followed by ethical use of AI (61%). This trend is especially true of recent IPO companies, 70% of which believe cybersecurity risk is relevant to their reporting.
• Nearly six in 10 companies believe sustainability reporting has value beyond meeting regulatory requirements, specifically in adding value for investors and other stakeholders.