Middle market companies took advantage of newfound clarity in crisis and are poised not just for a return but a renaissance. According to the 2021 BDO Middle Market CFO Outlook Survey, CFOs anticipate the new year will bring recovery and new opportunities. A majority forecast economic recovery (60%) and revenue increases (56%) in 2021.
While financial forecasts vary, industries like technology, life sciences and healthcare that helped to power business continuity and advance COVID-19 care are particularly optimistic for growth in 2021.
“Unprecedented was the buzzword in 2020 for good reason. Many middle market companies persevered through levels of transformation and disruption in one year akin to what some companies experience in a full lifecycle,” said Wayne Berson, CEO of BDO. “But rather than hunker down and endure, middle market leaders endeavor to move forward to refresh strategy and enhance agility. While we’re not out of the woods, the middle market is poised to pivot to new levels of potential.”
What’s Next for Growth
A new reality brought increased demand and opportunity for innovation across every industry. CFOs report that the pandemic accelerated digital transformation (39%) and opened new expansion opportunities for products or services (36%) and geographies (31%).
Deal flow was unsteady in 2020 as CFOs assessed and reassessed possible outcomes and the pandemic’s impact on them throughout the year. However, things are looking up as optimistic CFOs chart plans to seek PE investment (29%), undergo a merger or acquisition (24%) and pursue an IPO (20%).
The pandemic also put operations into perspective, and many middle market CFOs are keeping an eye on essentialism as they consider reorganization and cost cutting in 2021.
What’s Next for Work
Employee safety and diversity of perspective will remain top priorities in 2021 as the middle market reimagines both the future of work and the workplace, reconsidering what a traditional office looks like.
While returning to the office or floor is critical for many, 43% of CFOs will increase or establish permanent remote work options, changing the needs for a traditional office setting. Optimization will also be critical, with 28% planning to eliminate or consolidate their current real estate footprint. Additionally, CFOs will look to build a nimbler workforce through automation (38%) and outsourcing (32%).
What’s Next for Risk
The realities of 2020 put risk in context and exposed new vulnerabilities. Middle market CFOs’ top cited threats include a prolonged economic downturn, competitive pressure, supply chain disruption and falling behind on technology or innovation.
Coming out of an election year, tax challenges are also top of mind, with understanding total tax liability (19%) and navigating shifting trade and tariff policies (17%) among the top cited challenges. Managing disclosures and risk factors is a top financial reporting challenge as CFOs work out how best to communicate pandemic-related impact on matters that may be material to stakeholders.
Explore individual sector expectations in BDO’s six industry CFO reports:
- Energy: Demand fluctuations and supply chain disruptions magnified issues like low prices, declining capital access and growing debt obligations. For energy CFOs, refueling for the future will require addressing acute risks—including liquidity, trade and regulatory uncertainty—while still moving forward with long-term plans for energy transition.
- Healthcare: Healthcare CFOs see recovery ahead. The pandemic is driving an increased need for partnerships and consolidation that will help fuel new investments in key areas like telehealth and patient experience. Still, liquidity remains a key concern, and nearly one-third of healthcare organizations plan to restructure or reorganize to sustain service in 2021.
- Life Sciences: Nothing returns to normal without life sciences. In 2020, many companies rapidly pivoted R&D and production resources in the race to support the treatment of COVID-19. To thrive in 2021, the industry will continue to focus on advancing COVID-19 vaccines to the point of commercialization and broad adoption, engage in meaningful collaborations and build more resilient supply chains.
- Manufacturing: Manufacturers stepped up in 2020 to protect jobs, produce goods vital to the economy and help fight COVID-19. They are not yet out of the woods, however, as the road ahead will bring continued financial and operational challenges. In 2021, manufacturers must balance risk mitigation and other immediate needs with longer-term priorities such as investing in Industry 4.0, boosting supply chain resilience and adapting to changing customer expectations.
- Retail: Retailers’ existing challenges were exacerbated by the pandemic, leaving many on the brink of bankruptcy. Incremental improvements won’t be enough for survival; instead, resilience will require bold measures, from building digital business models to reassessing capital structure in order to focus on revenue replacement.
- Technology: Technology CFOs appear confident that they will be able to maintain the surge in growth brought on by new demands for digital business. But it will require continued innovation and enhanced optimization—from choosing the right path to maximize growth opportunities, considering the right source of capital, rethinking global supply chains and defining the future of work.