U.S. CEOs preparing for recession but have high appetite for M&A and digital investment

U.S. CEOs are preparing for a recession that a majority believe will not be mild and short, but they have a high appetite for mergers and acquisitions (M&A) that will significantly impact their organizations and remain committed to digital investment, according to a new study released by KPMG LLP, the U.S. audit, tax, and advisory firm.

“In an uncertain economic environment, CEOs are adjusting their business strategies and preparing for a recession, but they are committed to investing in transformational opportunities that will position their organizations for future growth,” said Paul Knopp, KPMG U.S. Chair and CEO. “CEOs are walking a tightrope as they consider a wide range of actions – including workforce reductions – to prepare for a potential recession while still managing through the pandemic, dealing with supply chain and technology disruption and numerous other risks and finding ways to drive growth.”

The 2022 KPMG CEO Outlook features insights from more than 1,300 CEOs at large companies globally, including 400 in the United States, on the key challenges and opportunities in driving business growth. Key perspectives from U.S. CEOs are highlighted below.

CEOs are preparing for a recession that only one-third believe will be mild and short

• 91% believe that there will be a recession in the next 12 months; only 34% of U.S. CEOs think it will be mild and short.
• 79% have expected and planned for a recession. 51% are considering workforce reductions over the next six months in preparation for a potential recession.
• 57% predict 6-10% of anticipated earnings could be impacted by a recession in the next 12 months, while 37% predict 0-5% of anticipated earnings and 6% predict 11-20% of anticipated earnings.
• Over the next six months, U.S. CEOs are confident in the resilience of their companies (83%), the domestic economy (80%) and global economy (72%).
• Long term (over the next three years), CEOs are confident in the growth prospects of the domestic economy (93%) and their company (95%), but fewer are confident in the global economy (71%).

CEOs plan to take advantage of transformational growth opportunities

• 56% of CEOs indicated they have a high M&A appetite and will likely undertake acquisitions that have a significant impact to their overall organization over the next three years, while 33% said they have a moderate M&A appetite and will make acquisitions that have a moderate impact to their overall organization.
• CEOs identified advancing digitization and connectivity across the business as their top operational priority to achieve their growth objectives over the next three years followed by inflation-proofing capital and input costs and their employee value proposition to attract and retain talent.
• 78% said they have an aggressive digital investment strategy, intended to secure first-mover or fast-follower status.
• 75% said continuing to drive digital transformation at a rapid pace is critical in their competition for talent and customers.

Risks to future growth abound: Disruptive tech, economy, cyber, climate

• When asked to identify the single most pressing concern for their organizations today, pandemic fatigue was the top choice, followed by political uncertainty, emerging/disruptive technology, economic factors (rising interest rates, inflation and anticipated recession) and supply chain.
• The top five risks identified as posing the greatest threats to growth over the next three years included emerging/disruptive technology, climate, operational, regulatory and interest rates.
• 44% of U.S. CEOs said their organizations were underprepared for a potential cyber attack.
• 81% said that geopolitical uncertainty was raising concerns for a cyber attack in their organization.
• 88% said protecting their partner ecosystem and supply chain is just as important as building their own organization’s cyber defenses.
• When asked to identify what is holding back their progress on business transformation, the top three areas were deciding on the right technology (63%), knowing how to keep pace with change and not fall behind (63%) and managing the cultural impact (55%).
• 80% said the proposed global minimum tax regime is of significant concern to their organization’s growth goals.

CEOs see importance of ESG, but many are planning to pause or reconsider programs

• 70% of U.S. CEOs said their company’s ESG programs improve their financial performance, up from 37% last year.
• CEOs identified access to capital as the top risk pertaining to failing to meet stakeholder expectations around ESG.
• 59% said they plan to pause or reconsider their organization’s ESG efforts in the next six months as they adjust their strategy to prepare for a recession.
• 81% said their organization’s digital and ESG strategic investments are inextricably linked.
• CEOs identified the biggest challenges to delivering on their company’s ESG strategies in three years as the necessary technology to measure and track their initiatives (24%) and increased or frequently changing regulations (20%).
• When asked to identify the greatest barrier to meeting their net zero or similar climate ambitions, CEOs identified decarbonizing complex supply chains (30%) and a lack of skills and expertise to implement solutions (22%).

Workforce concerns include burnout and ability to retain talent

• 73% of CEOs believe their organization’s ability to retain talent will be impacted by inflation and the rising cost of living.
• 76% said they need to address burnout from accelerated digital transformation over the past two years.
• When asked about how they envision the working environment in three years for corporate employees whose roles were traditionally based in the office, 45% saw them as hybrid, 34% saw them as still in office and 20% saw them as fully remote.