Divestments, carve-outs services - Ernst & Young - New Zealand

Divesting in turbulent times

As the real cost of capital rises, so the financial hurdle rate for businesses is increasing. There are clear reasons to reshuffle portfolios. Many, or even most, groups will find that some of the businesses they own no longer fit strategically or financially. At the same time, some companies are being forced by excessive leverage and extreme sensitivity to the economic cycle to sell high quality businesses.

Divesting companies in this new environment will require creativity. Innovation will include deal structures to cover equity, debt, management and counterparty arrangements.

Many of the accepted ‘rules’ for divestment processes no longer hold true. There will be no such thing as a ‘normal’ structured divestment process until further notice. Furthermore, preparation will need far more consideration. Divestments will not yield the value they did when the economy was expanding steadily. Value will be more elusive. This is a buyers’ market – not a sellers’ – and the best defence against that shift is focusing intensely on the buyers’ requirements when preparing a divestment for market.

Our transaction professionals are experienced in divestments and have the global insight and skill set to deal with challenging market conditions. We have worked on numerous divestments across various industries and understand the importance of executing an effective and accelerated transaction.