Protecting value & rebuilding
resilience in Spain
FIVE TRENDS IMPACTING BUSINESS RESILIENCE IN SPAIN
M&A proceedings and business transformation
Adaptation and survival have become the key priorities for companies affected by the COVID-19 pandemic. This adaptation has been based on two factors: firstly, companies’ ability to evaluate their own economic situation; and secondly, their understanding of the different financial and legal instruments that are available to help them overcome and navigate crisis situations.
For a growing number of companies, M&A activity has become their main means of economic recovery; FTI research indicates that nearly 1 in 3 large companies has undertaken M&A activity since the pandemic began. This has been offset however by nearly 2 in 3 companies who were undertaking M&A activity having to postpone or cancel their deals due to the pandemic.
A considerable majority of Spanish firms (nearly 4 in 5) have also, over the last year, considered the necessity of new processes that optimise operations and enhance business value, including undertaking insolvency and bankruptcy proceedings.
Whilst Spanish businesses remain unoptimistic regarding the economic outlook, instruments such as M&A – coupled with companies’ abilities to continue trading without suspending their operations – are playing a key role in rebuilding resilience and protecting value in Spain.
Debt, insolvency and bankruptcy proceedings
State aid and government support – albeit temporary – has played a vital role for Spanish companies in 2020. Government financial aid schemes coupled with financial incentives and modifications to tax systems have afforded many companies a lifeline, meaning less Spanish companies have had to restructure and refinance in comparison with their G20 counterparts (16.8% in Spain compared to almost 30% across the EU).
The end of state aid support in December 2020 will however lead to an estimated 50,000 declaring bankruptcy in 2021.
Whilst certain state aid initiatives may have come to an end, long term strategies such as effective cashflow management will also play a crucial role in protecting companies from the economic impact of COVID-19. Companies that proactively anticipate cashflow disruptions, and that are acquainted with cashflow recovery tools, will have a stronger chance of avoiding commercial collapse.
Despite this, FTI research indicates G20 countries are much better at managing cashflow disruptions proactively (45.6%) compared to their Spanish counterparts (32.8%).
Cybersecurity and financial crime
Many companies have struggled to implement – or been forced to adapt – traditional policies and measures across areas such as GDPR, cybersecurity, competition rules in the wake of the COVID-19 pandemic.
According to research conducted by FTI Consulting Spain and EsadeGeo, which focuses on global nonmarket risks, cybersecurity was identified by virtually all the interviewees as a policy affected by the COVID-19 pandemic.
With firms operating a remote working protocol and many staff on furlough, existing cybersecurity and control policies have been made redundant; as such, cybersecurity has become a greater priority and nearly 4 in 5 companies indicate it has risen up their board’s agenda.
The cybersecurity risks associated with remote operations are as comprehensive to Spanish companies as they are to companies across other G20 nations and are coupled with wider growing threats related to information theft, financial crime and money laundering. As such, Spanish companies are looking to implement cybersecurity measures that enable them to better monitor online activities and detect irregularities.
Just over a third of Spanish companies manage cyber risks proactively, compared to almost half across the G20 as a whole; those companies proactively armed with digital tools, and the capabilities to use them effectively, will more likely succeed in their efforts to protect value and build resilience.
Litigation, corporate investigations and media scrutiny
The number of corporate disputes and litigation cases affecting Spanish companies has grown during the COVID-19 pandemic, including within the energy and construction sectors amongst others.
The exposing of fraud, public investigations into white collar crime and increased scrutiny of companies in the media have considerably impacted Spanish companies in 2020. FTI research indicates over a quarter of Spanish companies expect their financial practices to be investigated over the next few months, compared to just 16.4% of their wider G20 counterparts.
Nearly half – 49.3% of Spanish companies – are currently undergoing a regulatory compliance investigation, compared to only 39.6% of companies across the G20; nearly half of all Spanish companies are also being investigated for their use of state economic resources.
Concern remains that commercial disputes and litigation will influence investment decision; there will therefore remain a clear need for litigation dispute and reputation management infrastructure – including effective PR, government, and social media engagement strategies.
ESG and the PA function in Spain
ESG (Environmental, Social and Corporate Governance) and PA (Public Affairs) matters have become a greater priority for companies worldwide in recent years, and 85% of large companies have used the COVID-19 pandemic as an opportunity to enhance their approach to ESG and sustainability issues.
Stakeholders’ recognition of ESG matters is on the rise, and it is widely accepted that good social practice will better help companies access finance, attract talent and generate business. As a result, within ESG, 80% of businesses have been focused more on the ‘social’ pillar since the COVID-19 pandemic broke out.
As companies place greater importance on the political-social and regulatory environment within which they operate, Public Affairs departments have also taken on a greater role; almost all large Spanish companies now operate a Public Affairs department in one form or another. Those companies that continue to develop effective communication strategies and strong government engagement will have the greatest opportunities to grow more resilient and competitive.