What does the economic recovery look like?
We recently conducted a survey of executive leaders and other industry participants on what they thought the economic recovery might look like. We had over 250 responses, so a pretty good sample size. So, let us dive into the results and what it means for the global economy.
What are the various scenarios?
There have been many different scenarios thrown around by economists recently as to what the post Covid-19 world might look like. However, we focused in on the scenarios in our research that seem to be getting talked about the most and are shown in figure 1 below.
Figure 1 – Economic Recovery Scenarios
Source: Sampford Advisors.
Let us start by explaining in a little more detail what these various scenarios look like.
V-Shaped (Light grey dotted line) – This is our quickest recovery scenario, with an immediate bounce-back and getting back to ‘normal’ by the end of 2020.
U-Shaped (Dark grey dotted line) – In this forecast, we do not see a meaningful recovery begin until mid to late 2021.
W-Shaped (Red dotted line) – Some economists worry that the amount of debt and printing of money will lead to a future recession. So, this scenario plots a relatively quick recovery followed by a second recession relatively quickly. The shaped of the W is obviously unknown, especially how long the peak is.
Checkmark (Light blue dotted line) – This is our second quickest recovery scenario with us returning to normal one quarter behind the V-Shaped recovery – i.e. the end of 2020.
L-Shaped (Yellow dotted line) – This is the most bearish scenario, taking at least a few years to recover and looking more like the recovery we had from the 2008 financial crisis.
What were the results?
The results of our survey were really interesting. With over 250 people responding – mostly business executives and market participants (accountants, lawyers, bankers) - it is a pretty good sample size and a well-educated group. In figure 2 below we show the distribution of results, which came out a little different to what we expected. With the equity markets mostly recovering as of last week, we assumed that most people would be looking at a V-Shaped recovery.
Figure 2 – Survey Results (N=256)
Source: Sampford Advisor online survey conducted on April 20-21, 2020.
As you can see from the results however, most respondents were more bearish than that with 80% saying they thought it would be a U-Shaped, W-Shaped or L-Shaped recovery (43% U-Shaped, 23% W-Shaped, 15% L-Shaped). Less than 4% of respondents said they thought it would be a V-Shaped, while 16% said they thought it would be a checkmark.
What does this all mean?
While the equity markets have bounced, they seem to be disconnected from the true sentiment of many market participants and the reality that many business leaders are seeing in their businesses. So as the adage goes, we would recommend planning for the worst and hoping for the best. In other words, assume that the recovery is at least U-Shaped or W-Shaped and plan accordingly. If you are a VC backed company this means assuming there might not be VC capital until late in this cycle and you will need the runway to get there. Or if we do recover and you can raise capital, do not forget about the W scenario – raise capital when you can and monitor to see if there is another dip in the future.
While all of this is very difficult to navigate and predict, running multiple scenarios that account for these different realities is essential to ensure businesses survive and then later thrive!
About Sampford Advisors
Sampford Advisors is a boutique investment bank exclusively focused on mid-market mergers and acquisitions (M&A) for technology, media and telecom (TMT) companies. We have offices in Toronto, Ottawa and the US and have done more mid-market tech M&A transactions than any other adviser.