The ongoing sovereign debt crisis in Europe, coupled with a weak economic outlook for the U.S., means growth in two important markets for European business services companies will likely be lackluster in 2012, according to a report published by Standard & Poor’s Ratings Services.
A new Industry Report Card Why European Business Services Companies Should Hold Up Through Economic Uncertainty points out that many of the larger business services issuers rated by Standard & Poor’s are turning the attention to emerging markets such as Brazil, India, China, and Australia in their quest for growth. In 2012, we expect these companies to accelerate their investments in these countries because operating margins tend to be higher than in developed markets.
However, the report does highlight several risks facing the business services
sector in 2012, namely:
- An unexpected increase in debt-financed acquisition activity;
- A more severe economic downturn than we currently anticipate; and
- A build-up of cash on balance sheets, which could lead to shareholder
pressure for extraordinary dividends or share buyback programs.