Divestment appetite in Oceania more than doubles to fund technological investments
Wednesday, 21 March 2018
- 86% of companies in Oceania plan to divest in the next 24 months
- 66% say changing technology is directly influencing divestment plans
- 88% indicate tax policy changes are major geopolitical divestment drivers
Intentions to divest in Oceania are at record levels – driven by ongoing pressure to evolve existing business models amid rapidly advancing technology, according to the EY Global Corporate Divestment Study, an annual survey of 1,000 executives worldwide.
The divestment appetite in Oceania more than doubled, with 86% of companies planning a divestiture in the next two years – up from 31% in 2017– with a business unit’s weak competitive position in its marketplace being a key driver. Two-thirds (66%) said their divestments were directly influenced by the evolving technological landscape. A significant majority (84%) of executives say the need to fund new technology investments will make them more likely to divest – using the proceeds to improve operating efficiency – and 81% to address changing customer needs in their core businesses.
Stephen Lomas, EY Oceania Divestiture Advisory Services Leader, says:
“More than ever, corporate executives are asking themselves what they need to do to ensure their organisation remains competitive in an environment of significant technological change and disruption. There is a sense of urgency amongst those executives who see technology altering the competitive landscape and recognise that their organisation needs to adapt quickly. With access to new analytic technology that provides deeper insight into the performance of their business, executives feel more comfortable than ever to undertake divestments to fund growth initiatives. This is a real sea change from previous years.”
A business unit’s relative weak competitive position in its marketplace is the primary driver for divestments, as cited by 82% of Oceania’s respondents in the latest findings. Businesses are increasingly motivated to divest non performing parts of the business that they believe have remained in their portfolio for too long, with more than half (54%) of executives admitting they held their assets longer than they should have.
More than three-quarters (77%) of divestments are prompted by opportunistic, unsolicited bids, according to the survey. The survey also found that those that conduct portfolio reviews annually are twice as likely to exceed performance expectations for divesting “at the right time.” Seventy –two per cent of companies in Oceania assess their portfolios twice a year to determine the business units or brands to grow or divest.
Lomas says: “The use of analytics is strongly on the rise. Two-thirds (66%) of our regional respondents used advanced analytics to understand the true value of a non-core asset in their last divestment. And a majority (82%) say they will use reporting and analytics to support their next divestment. This is good news for the region. Companies that consistently apply data-driven analytics to decision-making are more likely to exceed price expectations in their divestments. And if you receive an unsolicited approach for part, or all of your business, how do you respond if you don’t already understand its value to you?”
Macroeconomic and geopolitical triggers remain driving divestment decisions in Oceania. The tax reforms offer a new opportunity to revamp corporate strategies, with 88% highlighting tax policy changes as one of the most significant geopolitical shifts that may affect plans to divest. However, three-quarters (74%) of companies report that lack of preparation in dealing with tax risk caused value erosion in their last divestment.
Lomas says: “In the current environment, some companies are still unsure whether to divest a business – nervous that they might miss some longer term value. In these circumstances, Oceania companies should consider using creative deal structures – such as partial divestments, joint ventures, revenue sharing and collaboration agreements – to bring in partners that together may enhance the overall business value.”
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About the EY Global Corporate Divestment Study
The EY Global Corporate Divestment Study focuses on how companies should approach portfolio strategy, improve divestment execution and future-proof their remaining business amid rapid technological change. The results of the 2018 study are based on more than 900 interviews with corporate executives and 100 private equity executives worldwide surveyed between October and December 2017 by FT Remark, the research and publishing arm of the Financial Times Group. Key sector findings can be found at ey.com/divest.