Digitalisation driving huge change for our clients
March 2021
John Feeney
Head of European Corporate Finance
Mizuho Bank, Ltd.
As the world has navigated the unexpected over the last year, with the pandemic having an impact on all businesses, our clients have had new and different needs with a particular focus on liquidity. But they’re also considering what comes next, and plans for long-term growth continue to be central to their strategic thinking. They’re looking for opportunities to expand their businesses or adapt to new environments, whether those are the result of the pandemic, changing consumer expectations, globalisation or other factors.
One such consideration is digitalisation, which is driving huge change for our clients across industries, sectors and geographies. How this plays out varies, from a shift in production methodologies, to smarter supply chains, to sophisticated usage of data in order to better understand products and consumer needs. Or it may be all of these at once. But it’s always about investment in technology that will improve their businesses, create better products, ensure more efficient use of resources, and enable smarter distribution to clients and consumers.
What this looks like in real life
For an auto-manufacturer, digitalisation is multi-faceted. As the industry shifts from combustion powered to electric vehicles, the entire production cycle is being re-imagined. And it’s being done on an accelerated timetable to meet growing demand from both customers and regulators. At the same time the industry is also investing in autonomous driving systems. This requires the gathering of huge amounts of data, and the development of smart systems, for assessing and analysing this data. All of which leads to heavy investment in R&D as well as new facilities, new supply chains and a new way of interfacing with consumers.
The utilities industry is also heavily impacted by digitalisation. Firms that may be generating power predominantly from carbon fuels are shifting rapidly towards more sustainable generation. Renewable generation, however, is generally more volatile than traditional sources and, coupled with an increasingly decentralised grid featuring dispersed battery capacity, the path to the consumer becomes more complex. Smart data helps these companies understand peaks in supply and demand and allows real time responses, ensuring less waste while serving consumer needs.
What these industries, and others, have in common is that whether the focus is production processes, supply chains or data management, the technology investment is significant, with a potentially transformational effect on the business and, of course, customers.
Financing fundamental changes in business models
Navigating these changes brings a shift in financing requirements as companies adopt new balance sheet structures, changing liquidity requirements and the need to tell a different story to investors.
In the first phase, Mizuho clients have been improving access to liquidity and capital. They need to invest in R&D programmes and re-position their businesses for future opportunity. They may well look to do this via the bond market, but we’re also seeing significant interest in other funding channels such as the securitisation market where they can raise liquidity from a different investor base, using assets as collateral.
In the future, as business models evolve so too will funding requirements. For example, what is the appropriate model for the electric, autonomous vehicles of the future? It is very possible many will be rented to end-users based on ‘pay as you go’ models, driving a new revenue model for which securitisation may be the most suitable financing mechanism.
We are working with our clients to support these shifts in funding and changing balance sheet requirements. The pandemic brings yet another dimension to this but, if anything, it has refocused companies on the importance of research and development, as well as driving careful thinking on how to finance their goals.
We’re committed to steadfast support for our clients as they navigate the options, opportunities and pitfalls on this path.
Disclaimer: This publication has been prepared by Mizuho Bank, Ltd. (“Mizuho”) and represents the views of the author. It has not been prepared by an independent research department and it has not been prepared in accordance with legal requirements in any country or jurisdiction designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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