Increase in divestments expected as buyers circle assets
- 54% of companies expect strategic sales to increase
- Unsolicited approaches expected to increase as pace of M&A accelerates
Monday 9th March 2015 - Divestments will be a core component of companies’ capital strategy in the next year as management teams address pressure to improve portfolio performance, according to EY’s Global Corporate Divestment Study, Closing the deal: strategies to increase speed and value.
The study is based on more than 800 interviews with corporate executives globally conducted between November 2014 and January 2015, focused on strategies and concerns in regard to divestment strategies.
More than half of the executives surveyed (54%) expect the number of strategic sellers to increase in the next year. For those willing to divest, buyers are on the hunt. Nearly half (42%) of companies expect the number of unsolicited approaches to increase in the next year.
For local companies, the lower Australian dollar is expected to increase inbound investor interest and is added motivation for Boards to fully understand the value of the assets across their business, according to EY Oceania Transaction Services Leader Stephen Lomas.
“It’s vital that you understand the value of the businesses and assets that make up your company. If a buyer comes knocking, you need to be able to appropriately assess the offer, understand whether the asset fits in your company’s growth plans or if you are better served divesting that asset and reinvesting the capital elsewhere,” says Lomas.
“Disruptive technologies are creating major changes across a range of sectors which may lead to an unprecedented level of portfolio turnover. So we expect to see more companies assessing their core businesses and evaluating their portfolios closely this year.”
Lomas says the need for companies to find growth in a low growth economy in Australia and globally will further fuel M&A and “divestments are a key path to achieving growth”.
Almost three-quarters (74%) of respondents used funds from their most recent divestment for growth. Specifically, 34% reinvested the funds back into the core business; 23% invested in new products, markets, or geographies; and 17% made an acquisition.
“It is particularly interesting to note that the market rewards companies that divest assets that are no longer part of its future growth plans, with two-third of companies seeing an increased valuation multiple in the remaining business after their last asset sale,” says Lomas.
“Boards need absolute clarity on their growth strategy and they need to be properly assess whether they need to continue to own parts of their company. They should also be prepared for unexpected approaches by understanding the value of their portfolio.”
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About EY’s Global Corporate Divestment Study
EY’s Global Corporate Divestment Study analyses companies’ top questions and concerns relating to portfolio review and divestment strategies and provides insights on how to maximize divestment success. The results of the 2015 study are based on more than 800 interviews with corporate executives surveyed between November 2014 and January 2015 by FT Remark, the research and publishing arm of the Financial Times Group. Key sector findings can be found at www.ey.com/divest.