Will This Ever End? – Thoughts on Figuring out the New Normal

Matthew Saltzman, Partner & Director, Strategic Advisory Services

As we live through the pandemic that has run through the world the realization that this pandemic is not related solely to the coronavirus. There is a seismic shift that is taking place in the world and it is impacting every person on the planet. This shift is taking place much as the industrial revolution shook the world over a hundred years ago. There is a new generation of emerging voices that want change and the coronavirus may just have been the catalyst that set off what has been brewing under the surface for decades. Like a perfect storm, it all seems to be coming together at once. Climate change, the current civil unrest around human rights and diversity, the coronavirus and its implications for the entire health care system, the world monetary system based on global federal deficits and an aging population caught in a technological revolution much as an aging agrarian population was caught in the industrial revolution not so long ago. My hope is that the article below will provoke the reader with things to think about, places to look when considering their own situation, and some questions to ask.

There is an old Chinese proverb – “May you live in interesting times”. I am not sure exactly what to make of that but the fact is these are definitely interesting times and China is certainly playing a significant role. From Hong Kong to Trade Wars to coronavirus to Intellectual Property Rights, to control of critical supply chains to climate change China is right in the middle of it all. The world as Thomas Friedman wrote is flat and what happens in China definitely impacts what happens here in America. The question is, what is the impact in the long and short run for businesses and their employees in the Midwest and other parts of America?

Clearly the implications are far reaching and obvious. What is not obvious are the future risks contained in the Made in China 2025 plan that identifies 10 key industries the Chinese intend to dominate globally. They intend to do this utilizing the same ethics and methods that they have demonstrated so blatantly in their handling of all the topics above. In short, China intends to dominate and America has been one of the greatest enablers. We have exported our capital, jobs, supply chain, technology, and medicines to the Chinese. This has left us vulnerable and as we rack up large amounts of federal debt in conjunction with starving local governments the recipe is in motion for major trouble.

The Wall Street stock market has disconnected from Main Street as hot money is chasing the momentum but the market wants to go higher and higher. The economy is starting to reopen and go back to business which is the best thing we can do. We will all probably look like bank robbers wearing fashionable masks but until a vaccine is found, that is just the way it will need to be. The workplace will face some long overdue changes from a diversity perspective and many jobs will most likely be outsourced or remotely fulfilled. Technology is more prominent in our lives than ever and the adoption curve has probably accelerated at least five years the past few months as more and more people are forced to adopt it in everything from Zoom to telemedicine and food delivery.

The challenge we all face lies in the question of will this ever end and when it does what the new normal will be. Everything from education to the Kentucky Derby will need to be rethought. The monitoring and collaboration among teams of employees will require a different paradigm. Employees will need a different skill set going forward and there will be an enormous displacement in the vulnerable population of the lesser educated, lower skilled, and older work force. It is interesting to note that the 10 industries targeted by our friends in China include: robotics, artificial intelligence (think Siri and Alexa), air and space, next gen vehicles (think Tesla or Google driverless), medicine, and new materials (they already dominate rare earth materials).

These targeted industries above will have significant impact on how we live our lives and the future way business is conducted. McDonalds has already installed stores where the model is almost totally automated with only a few employees. Robotics and automation will take care of many assembly line jobs that are currently held by the vulnerable worker. Block chain technology will disrupt many of the service jobs as it brings incredible efficiency to bear on the management of information. We have already felt the sting of the lack of supply chain (PPE) in medicine and the fact that a tremendous amount of the medicines themselves are manufactured in China. These are all opportunities. In fact, the Coronavirus has been and still represents an enormous opportunity for every business owner to step back and reassess their business. At Strothman Strategic Advisory Services we have done just that during the past few months.

We have developed new tools and models to help our clients navigate the future. We have created new informational content and established a Youtube channel to provide great content. We have done this by tapping into community leaders that previously did not have time to come together for roundtable discussions and put them on the channel. We have hired additional resources to help our clients navigate these interesting times and move ahead of the curve. During the slowdown we have spent time on our business so that we can be the resource our clients can count on during these interesting times.

As the government prints trillions of dollars in debt to combat the shutdown you have to wonder what it means for the future. We don’t know when, but you can be assured someone will have to pay for all of this and that it will be in the form of higher taxes, greater efficiencies, reduced services, some form of inflation, and increased attention to strategic planning. In the M&A world, those who are considering an exit will need tremendous expertise as buyers will need to dynamically change the structure of the capital stack and multiples are sure to contract in most cases. For those buying, there will be much greater scrutiny on the quality of earnings that they can expect to receive post coronavirus. Technology, diversity, real estate, and clean operations are all new variables that will impact value in a more meaningful way than before. Sellers and buyers beware.

The lower middle market and many larger operating companies will need to be more nimble, partner up, merge or acquire to gain critical mass, and shed unproductive assets. The bankruptcy activity has already started as many entities large and small will need to reorganize. These are interesting times and there is no substitute for experience. We have helped our clients transition from telephones to smartphones, work through the ’87 crash, 91 S&L crisis, ’97 Asian Contagion, Internet Bubble, Great Recession of ’08-11, and the current condition. We are experts in creating and managing the modeling tools discussed above, have been navigating these difficult waters and situations for over 30 years, and can help you do the same. Call or contact us to see how we can help you or to answer any questions you might have. We are here to help — all you need to do is reach out.