Strategic divestments are no longer optional

The rationale for making divestments is shifting. Our Global corporate divestment study finds many companies still using divestments as a short-term tactical tool, often to raise cash or pay down debt.

Among those surveyed, 77% intend to accelerate their divestment plans over the next two years.

That's no surprise given the difficulties many businesses have faced in terms of cash and credit since the financial crisis.

However, in this prolonged period of low growth, divestments are likely to play a more strategic role in how global companies navigate uncertainty, meet their corporate objectives and create value for their stakeholders. We believe companies are starting to take a more structured approach to align their priorities with which assets they will retain or sell.

In this challenging business environment, "wait-and-see" sentiments regarding any transaction are understandable. But our research shows that companies may be missing out on opportunities by delaying divestments. An increasing number of companies are recognizing this.

Among those surveyed, 77% intend to accelerate their divestment plans over the next two years, and 46% are in the process of divesting or are planning to divest over the same timeframe. Interestingly, some 40% of respondents stated that a high degree of buyer competition in the mergers and acquisitions (M&A) process was driving up values.

While the appetite for divestments may be growing, the conditions for completing transactions remain challenging.
Boards, regulators and shareholders are demanding greater assurance that the strategic and value creation objectives from divestments will be achieved.

Divesting effectively and efficiently has always been an option to build value; in today's economic environment, ensuring a divestment is strategically effective is no longer optional.

Pip McCrostie Global Vice Chair Transaction Advisory Services

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