The EY Global Corporate Divestment Study 2018: a spotlight on Asia-Pacific
Intentions to divest in Asia-Pacific are at record levels, driven by ongoing pressure to evolve companies' existing business models amid rapidly advancing technology. These are the findings of the EY Global Corporate Divestment Study 2018, an annual survey of 900+ corporate executives worldwide with 290 in Asia-Pacific, conducted between October and December 2017.
The number of respondents planning to complete a divestment in the next two years has more than doubled from last year (35% to 83%) and is a significant increase from 17% in the 2015 study.
The fundamental divestment driver, cited by 82% of Asia-Pacific companies, continues to be a business unit’s relative weak competitive position in its marketplace. Just over two-thirds (67%) said the changing technological landscape is directly influencing their divestment plans, with those looking to divest to fund new technology driven by the need to improve operating efficiency (83%) and address changing customer needs (84%). Four in five intend to use more predictive analytics to make portfolio decisions in the next two years.
The use of analytics in the divestment processes is strongly on the rise. Investors are not only applying advanced analytics to understand the true value of a non-core asset, but they are also using predictive analytics capabilities to make portfolio decisions, helping companies to quickly respond to rapidly changing internal and external forces.
83% of Asia-Pacific companies plan to divest in the next two years.
More than ever, divestments are at the core of companies’ growth and transformation strategies. Companies face intense pressure to compete and keep pace with rapid technology changes. The key divestment driver continues to be a business unit’s relative weakness in competitive position in its marketplace – cited by 82% of Asia-Pacific companies in the latest findings.
Changes to the technology landscape are directly influencing Asia-Pacific companies’ divestment plans. Those companies divesting to fund technological change are primarily looking to address changing customers’ needs (84%) and to improve operating efficiency (83%).
Seventy-one percent (71%) of respondents said their most recent divestment had been opportunistic, highlighting the importance of understanding the value of your portfolio when responding to unplanned approaches. Seventy-four percent (74%) leveraged advanced analytics to understand the true value of non-core assets in their last divestment.
80% of Asia-Pacific companies will use more predictive analytics to make portfolio decisions in the next two years.
Applying data-driven analytics to portfolio review is considered a big challenge for Asia-Pacific companies. Most Asia-Pacific companies (97%) assess their portfolios to determine business units or brands to grow or divest at least annually. With regular reviews now the norm, the future of portfolio reviews is a real-time process that captures the exponentially increasing amount of internal and external data available to companies and their competitors. The vast majority (93%) of Asia-Pacific respondents say they will use reporting and analytics technologies to support their next divestment, although 68% said they struggle to identify a team with the right analytics and technical skills to drive portfolio review.
Strategy teams are making greater use of applied, or predictive, analytics capabilities in their portfolio reviews. Companies with effective predictive analytics capabilities are 81% more likely to achieve a sale price that exceeds their expectations and 35% more likely to close their deals ahead of schedule.
67% of Asia-Pacific executives says lack of preparation in dealing with tax risk caused value erosion in their last divestment.
Many companies miss out an opportunities to improve value in their divestment process. Besides lack of preparation in dealing with tax risk, other value erosion factors include lack of fully developed diligence materials (64%), lack of focus and competiting priorities (60%) and not presenting the business on a stand-alone basis which scared off buyers or prompted lower bids (43%).
Analytics can help companies create value pre-sale. Those sellers that leveraged analytics in their pre-sale preparation were more likely to achieve a sale price above expectations. At the same time, it allowed buyers to identify growth opportunities that support higher valuations – 73% report that they had given buyers access to data so they could run their own advanced analytics.
The importance of proper preparation is clearly evidenced by the most recent response to the question of whether companies prioritized value over speed in their most recent divestment, with 79% saying value was prioritized, up from 59% in 2015.
59% of Asia-Pacific companies say they held onto assets too long.
Companies globally that conduct portfolio reviews annually are twice as likely to exceed performance expectations for divesting ‘at the right time.’ The vast majority of Asia-Pacific companies are assessing their portfolios annually (44%) or twice a year (46%) to determine the business units or brands to grow or divest. Yet, despite this attention, almost three in five executives say they still held onto assets too long.
35% of executives from Asia-Pacific indicated that over the last 12 months highlighting tax upsides to purchasers better enabled them to drive value.
The vast majority (87%) of Asia-Pacific firms say tax policy changes are a geopolitical driver in their plans to divest. However, more than two-thirds (67%) report that lack of preparation in dealing with tax risk caused value erosion in their last divestment.
Companies in the region have important opportunities to present both tax challenges and upsides – early, and in detail – to make buyers more enthusiastic about the potential of the purchase. Sellers need to understand how the tax operating model and effective tax rate associated with the business’s supply-chain structure will affect a buyer’s effective rate and cash flow post-transaction, both on income taxes and indirect taxes.
About the 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 2018 study results are based on more than 900 interviews with senior corporate executives, including 290 from Asia-Pacific. The survey was conducted between October and December 2017 by FT Remark, the research and publishing arm of the Financial Times Group.