Despite continued geopolitical challenges, for most Europe-based companies the motivation to divest is increasing competition and disruptive technology. Even though 52% name geopolitical uncertainty and macroeconomic volatility as triggers for their latest divestment, this is down from 62% and 69%, respectively, in 2017 when these were the major driver.
More than three-quarters (77%) of European executives agree that the changing technology landscape is directly influencing their divestment plans, up from 50% in 2017. Companies are recognizing that some of their underperforming businesses, in need of further investment, are no longer core to the growth strategy. In fact, a unit’s weak position in its marketplace being reported by 87% of executives as this year’s top divestment trigger, up from 57% in 2017.
Divesting to focus on top-performing assets and investment in technology can provide an essential competitive edge, a fact that opportunist buyers are focusing in on with approaches and unsolicited bids increasing from 36% to 73% in the last year.
With businesses looking at premium prices, now is the time to divest. While valuations are above historic averages across most markets, the combination of higher global economic growth and the added impetus of US Tax reform may hold them at elevated levels in the near term. However, the anticipated rate hikes in the US, and UK, and then in the Eurozone, make this an ideal time for companies to consider divestments to unlock enhanced value that can be recycled and reinvested.
These factors make companies more open to opportunistic approaches — of which they should be cautious, due to likeliness of weaker performance.