A third of global companies planning a sale and 80% of global executives are open to offers at a time of growing M&A activity
London, 20 January 2014
A third (33%) of global businesses are planning a sale in the next two years according to a new report from EY. The annual 2014 Global Corporate Divestment Survey, which surveyed more than 700 corporate executives globally, also reveals that 80% of global executives are open to offers for prized assets and a 30% premium would bring a majority of execs to the deal table.
- 30% premium could seal a deal for prized assets
- Not all execs ‘have a price’ – a fifth wouldn’t sell trophy assets at any premium
- More than half would consider full sale of their business
- Those employing leading practices in recent divestments have extracted greater value from sales
In terms of options, 55% of global executives would consider a full sale of their business compared to 34% who would opt for a carve out and 14% an IPO.
Pip McCrostie, EY’s Global Vice Chair Transaction Advisory Services, says:
“Divestments are now a fundamental part of business strategy – selling is becoming as great a focus for many CEOs as buying, with strategic divestments and capital redeployment offering a route to value and growth.
“The pace of innovation, changing purchasing patterns and the return of modest growth to the global economy – means business leaders will need to more regularly re-assess their portfolios and strategic goals to maximize their growth. Selling – while often leading to a short-term dip in the top-line can lead to longer-term growth as capital is redeployed into higher growth core activities, expanding into new markets or developing new products.
Paying the price
With 80% of executives open to offers even for prized assets, a 30% premium on a ‘fair’ price will bring half to the deal table. Higher prices will be needed to lure the trophy from the cabinet for others and contrary to the old adage, not everyone ‘has a price’ – 20% of executives say they would not sell a valued asset for any premium.
Mrs McCrostie continues: “Business leaders are revealing what premiums to a fair price would bring them to the deal table to sell prized assets. At a time when we see renewed focus on deals following years of historically low M&A activity, these insights into price expectations will be interesting reading for potential buyers.
Selling is big deal for some sectors
As with all aspects of M&A, different factors drive divestment activity across industries. Life Sciences should be the most active divesting sector, with 41% expecting to sell in the next two years – the main reason being regulatory change. The key driver for divestments in Consumer Products is off-trend product (58%), followed by 44% who said reduced demand or market share would make them consider divesting.
In the fast moving Tech sector, half of executives said the biggest trend prompting them to consider divestments is big data and analytics developments, followed by cloud innovations and mobile as companies re-evaluate their core business and competitive positions.
Extracting value – leading practices proven to deliver
More than half of respondents have divested an asset in the past two years. The vast majority of those (80%) that pursued a strategic rather than opportunistic approach to a sale saw a positive impact on their valuation as a result – half of those experienced greater benefits than anticipated, compared to only a fifth of companies 12 months ago.
However, even though a third plan a divestment, further opportunities to fully optimize value remain. Half the respondents don’t conduct regular portfolio reviews to assess new growth opportunities. Only 41% undertook a strategic portfolio review to drive their last divestment; 52% said their executive board was involved in setting portfolio review goals.
McCrostie comments: “Businesses extracting the most value from divestments regularly redefine their strategic core business and determine whether to invest, acquire or divest. The survey clearly finds better stakeholder returns are derived from divestments determined by strategic reviews than those undertaken opportunistically.
“Leading companies that consistently analyze their core business through portfolio reviews, dedicate resources to make better informed decisions and are prepared to act strategically rather than opportunistically achieve the most successful divestments – fully aligned to the strategic priorities of their business.”
Planned divestments and the M&A story for 2014
The divestment plans of global executives will be a vital part of a developing M&A story for 2014. January could see the highest value recorded in the first month of the year since 2000. Deal value is currently running 150% higher than 2013 and 20121. In terms of US$1b+ deals, it is 400% higher. With 15 US$1b+ deals and three US$10b+ megadeals already announced, we are seeing a very robust start to 2014.
McCrostie concludes: “After five years of depressed M&A activity we may now see a modest improvement in the global deal economy as companies move from a ‘mend and extend’ approach to ‘spend’. A consistent rather than patchy improvement in the global macro-economic picture is providing the foundation for greater investor confidence.
“Competition for assets may increase – so could competitive positioning among would-be sellers. This changing deal context will foster even greater stakeholder scrutiny to ensure divestments are effective and executed strategically to extract maximum value and support the long-term growth agenda.
113 days activity extrapolated to 31 January 2014. Source: ThomsonOne
Notes to Editors
About the survey
The EY Global Corporate Divestment Study analyzes leading portfolio review and divestment strategies and provides insights around a central thesis: Strategic portfolio management leads to improved divestment outcomes.
Results are based on 720 interviews with corporate executives surveyed over September and October 2013 by FT Remark, the research and publishing arm of the Financial Times Group.
The survey includes respondents from the Americas, Asia Pacific, Europe, the Middle East and Africa. While a broad range of industries is included, the study focuses on five key sectors: consumer products, life sciences, oil and gas, power and utilities and technology. Respondents stated that they have direct knowledge of or hands-on experience with their company’s portfolio review and divestment activity.
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