LONDON, March 3, 2015 /CNW/ -- Divestments will be a
core component of companies' capital strategy in the next year as
management teams address pressure to improve portfolio performance
and shareholder returns, according to EY's Global Corporate
Divestment Study, Closing the deal: strategies to increase
speed and value. More than half of executives (54%) expect the
number of strategic sellers to increase in the next year.
For those willing to divest, buyers are on the hunt. Nearly half
(42%) of companies expect the number of unsolicited approaches to
increase in the next year. Given the potential benefits of
divesting assets, 47% of companies say that even if they weren't
looking to divest, they would be willing to sell at a premium in
the range of 10% to 20% (and a third would go below 10%).
Divesting in order to grow
For many companies, divestments are a key path to achieving
growth, and 74% of respondents used funds from their most recent
divestment for growth. Specifically, 34% reinvested the funds back
into the core business; 23% invested in new products, markets, or
geographies; and 17% made an acquisition. The financial benefits of
divestments are undeniable considering 66% of companies saw an
increased valuation multiple in the remaining business after their
last asset sale.
To stay competitive, many companies seek the flexibility
necessary for growth by stripping down to their core strengths and
offerings. Forty-six percent of executives initiated their most
recent divestment because the assets were not part of their core
business.
Pip McCrostie, Global Vice Chair, Transaction Advisory Services
(TAS), EY, says:
"Reallocating capital from non-core to core business and core
business adjacencies will be the name of the game in 2015. Mega
trends such as sector convergence, technological change, cloud
computing and digital are causing companies to continually assess
their core businesses and value chains. The result may lead to an
unprecedented level of portfolio turnover."
Activist shareholders driving divestment activity
Shareholders' demands will continue to be a major divestment
driver this year. Forty-five percent of participants indicate that
investor activism influenced their most recent decision to
divest.
Paul Hammes, Global Divestiture
Advisory Services Leader, EY, says:
"Shareholder activists are bolder than they have ever been, and
they leave no stone unturned in their hunt for untapped value.
Divestments will continue to be fueled not only by activists'
demands, but as a result of management teams' preemptive portfolio
reviews and ongoing portfolio fine-tuning."
Thorough preparation is a must
The study revealed that while many executives follow best
practices for portfolio review, 58% acknowledge that they do not
conduct reviews frequently enough and 56% report that better
industry benchmarks would improve their review process.
At the same time, 55% indicate that business analytics would
make their portfolio assessment more effective. Companies whose
divestments resulted in higher valuation multiples on their
remaining business were 58% more likely to have used strong
analytic tools than lower-performing companies.
Hammes says: "Without diligent, frequent portfolio reviews that
involve concrete data and advanced analytics, companies make
themselves vulnerable to shareholder activists. More importantly,
executives wind up leaving money on the table if they do not
prepare for a sale properly and deliberately."
Old growth strategies are no longer appropriate
Hammes says: "As the global economy settles into its new growth
pattern, the winners will be companies that recognize when their
old growth strategies are no longer appropriate and make informed
decisions tied to portfolio rebalancing. Across industries, our
survey found that half of executives say that closing deals quickly
and with certainty is more important than waiting longer to secure
a higher price. However, speed and value are not mutually
exclusive. Successful divestments achieve optimal value as a result
of advanced planning that includes regular portfolio reviews,
sophisticated analytical tools and a thoughtful divestment
roadmap."
Companies have a strategic imperative to make portfolio
decisions now. While nine industries are represented in the Global
Corporate Divestment Study, six key sectors are discussed in more
detail in our spotlight reports: consumer products, diversified
industrials, financial services, life sciences, oil and gas, and
technology.
View the report online at www.ey.com/divest. Follow us
on Twitter: @EY_Transactions
Notes to Editors
About EY
EY is a global leader in assurance, tax, transaction and
advisory services. The insights and quality services we deliver
help build trust and confidence in the capital markets and in
economies the world over. We develop outstanding leaders who team
to deliver on our promises to all of our stakeholders. In so doing,
we play a critical role in building a better working world for our
people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or
more, of the member firms of Ernst & Young Global Limited, each
of which is a separate legal entity. Ernst & Young Global
Limited, a UK company limited by guarantee, does not provide
services to clients. For more information about our organization,
please visit ey.com.
This news release has been issued by EYGM Limited, a member of
the global EY organization that also does not provide any services
to clients.
Bakyt Azimkanov
EY Global Media
Relations
+44 (0)20 7980
0869
bakyt.azimkanov@uk.ey.com
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SOURCE EY