Global Corporate Divestment Study 2015
Closing the deal: strategies to increase speed and value
Leading companies view divestments as a fundamental part of their capital strategy, especially to fund growth. More than half of the companies surveyed for our 2015 EY Global Corporate Divestment Study expect the number of strategic sellers to increase in the next 12 months. Our study discusses key strategies for successful divestments that optimize both speed and value.
Global key findings
Why you should consider divesting
- 74% of firms are using divestments to fund growth
- 66% saw an increased valuation multiple in the remaining business after their last divestment
How you can increase shareholder value
- 55% say they need better analytics tools to improve portfolio reviews
- Companies can learn value creation lessons from private equity
How to increase speed and certainty
- 50% of executives completed their deal on time by starting preparations earlier
- Preparation shortcuts elongate diligence and delay time to close
Sector divestment drivers
Each sector has its own strategic imperative for making portfolio moves now.
- Consumer products: Core growth is driving companies to drop underperforming brands. 55% of consumer products executives said that a strategic shift towards higher growth and margin brands was a key divestment driver.
- Diversified industrials: Companies need to build consensus for more effective portfolio reviews. Few industrial companies have sufficiently institutionalized the portfolio review process; with more than two-thirds of respondents from industrials (67%) saying their reviews should be more regular to be effective, the highest level of any sector.
- Financial services: Capital requirements and changing regulation continue to drive divestments. The combination of regulatory change and the shifting economic environment is leading to monumental change in the industry. The globalization theme of a decade ago has given way to a focus on core geographies that will deliver strong financial performance.
- Life sciences: Companies are pruning portfolios to re-invest in growth areas. 48% of life sciences companies made their last divestment because the asset being sold was not part of the core business. 41% – the highest percentage of any sector – re-invested the funds raised from their most recent divestment into their core business.
- Oil and gas: Plunge in oil prices is driving and hindering deals - Oil and gas executives were significantly more likely than other sectors to indicate that a unit’s weak competitive position was the trigger for an asset disposition (18% said this was the most important reason, compared to 12% overall).
- Technology: Activists are keeping technology executives on their toes - 53% of companies indicated that shareholder activism influenced their most recent decision to divest, the highest level of any sector.
Defining divestment success
A successful divestment meets three criteria:
- Has a positive impact on the valuation multiple of the remaining company
- Generates a sale price above expectations
- Closes ahead of timing expectations
High performers take the time to prepare well in advance of a divestment, understand the potential pool of buyers and their needs, and communicate the value of the transaction to shareholders. Medium performers do well on some, but not all, of these components.
|19%||of sellers are high performers who meet three key success criteria|
Are you considering divesting assets?
If not, you should be.
Among our respondents, 45% recently divested or placed a business on a watch list if it wasn't reaching performance criteria. We believe this trend is set to continue, with 54% of executives expecting an increase in the number of strategic sellers in the next 12 months.