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Make no mistake about it, market uncertainty associated with Trade Wars creates risk, and perceived risk reduces valuations. In a nutshell, this is exactly what we see playing out in the recent stock market turmoil and it’s not isolated to just publicly traded stocks, it is also being felt by private companies from start-ups to merger and acquisition activity, wherever equity transactions are occurring.
Many analysts see a rebound in M&A transaction activity in the second half of this year as interest rates prospectively begin to ease. Accordingly, the prospects for short-term improvements in macroeconomic conditions are causing many prospective sellers to wait for lower interest rates in the belief that valuations will increase.
Over my many years as a corporate CFO and, more recently, as an outsourced CFO and Financial Planning and Analysis (FP&A) professional, I have been puzzled over why so many hardworking, smart, FP&A teams engage in static linear thinking as it pertains to their financial planning processes. I have come to believe that it is because many FP&A teams have become conditioned to be comfortable with simple budget models that have static, consistent, linear rates of growth over time. They are comfortable budgeting based on events from prior periods by increasing sales revenue, along with associated production costs, based on targeted/desired growth without any reliance on other relevant economic factors and conditions.
As competition in the Beverage Alcohol Industry continues to put downward pressure on profit margins among constituent firms, especially in the Wine segment, it is now more important than ever for business managers to assess the effectiveness of their business’ strategies and tactics in order to ensure the long-term sustainability of their core business operations.
