Global Corporate Divestment Study
Strategic divestments drive value
Companies can create shareholder value by regularly assessing whether each business unit in their portfolio is contributing to strategic goals and long-term growth. In particular, portfolio reviews help companies determine:
- How to allocate capital in alignment with the core strategy
- How to effectively meet current and future market needs
- The value of each business unit on a stand-alone basis and its contribution to the entire organization
- Whether to divest or to invest additional capital in a business
Some key findings
- 85% saw an increased valuation multiple following their last divestment when it was based on an updated definition of core operations.
- 80% experienced a higher valuation multiple after their last divestment when they based strategic divestment decisions on their portfolio review.
- 53% said portfolio review effectiveness could be improved if a clearer link was made between results and subsequent actions.
Our latest Global Corporate Divestment Study, based on 720 interviews with corporate executives surveyed, found that more than half of surveyed companies have made a major divestment in the last two years.
However, companies are leaving money on the table. Only 41% of respondents said that their strategic portfolio review drove their last divestment decision. This is despite the fact that 80% who base divestment decisions on their portfolio review experienced a higher valuation multiple in the remaining business after their last divestment.
How high performers are more strategic
This study’s empirical analysis shows that companies that follow three leading practices are more likely to initiate divestments that increase the remaining company’s valuation multiples post-sale. That is, these divestments are generating significant attention from buyers and the sellers’ investors.
However, these high performers account for just 12% of respondents. Most companies are leaving money on the table.
Measuring divestment success
Sector divestment drivers
- Consumer products: The main driver for divestments is an off-trend product (58%), followed by 44% who said reduced demand or market share would make them consider divesting.
- Financial services: Regulatory changes and reduced growth outlook in certain markets have been the greatest drivers of divestments in the financial services industry and are likely to continue to drive divestments of non-core or under-performing businesses.
- Life sciences: This is expected to be the most active sector, with 41% expecting to divest in the next two years. Fifty-seven percent mentioned regulatory change as the main reason they would consider selling.
- Oil and gas: 63% of oil and gas respondents have divested over the last 2 years, primarily because of new technologies such as horizontal drilling and hydraulic fracturing. We see similar trends continuing globally, as sites once considered unviable are now turning into growth areas.
- Power and utilities: A third of companies are looking to divest. Low growth was cited as the main reason for divestment by 49% of sector executives, with 57% saying they would reinvest in fast-growth areas, such as alternative energy.
- Technology: 49% of sector executives said the biggest sector trend prompting them to consider divestments is big data and analytics developments, followed by cloud computing innovations (47%) and mobile devices (43%).
The views of third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.