- 75% of Asia-Pacific executives surveyed plan to divest in the next two years
- 56% of respondents in the area are more likely to divest to fund investments in technology, a sharp increase from 31% pre-COVID-19 crisis
Divestment intentions seem unfazed by the COVID-19 pandemic and remain at high levels in Asia-Pacific, according to the Asia-Pacific edition of the EY 2020 Global Corporate Divestment Study. The survey identifies four key factors that will likely drive and influence corporate divestment intentions in Asia-Pacific over at least the next 6-12 months.
Conducted annually, this year’s study surveyed more than 400 Asia-Pacific executives in the period before and after the onset of the COVID-19 pandemic. Of the Asia-Pacific companies surveyed after the pandemic started, 75% indicate they’re planning to divest within the next two years, marginally higher than responses just before the pandemic (74%). The survey also shows more than half (59%) of the Asia-Pacific companies plan to divest in the next 12 months.
Paul Murphy, EY Asia-Pacific Sell and Separate Leader, says:
“This year’s EY Global Corporate Divestment Study comes at a pivotal moment when business executives are facing unprecedent disruption. Interestingly, the EY survey shows Asia-Pacific companies are signaling a high intention for divestments to help reshape their portfolios and reposition for growth beyond the crisis. Sellers are also looking to fund new technology investments as they re-imagine their business models and prepare for ‘the new normal.”
Strategic capital decisions
Companies whose access to capital markets is more constrained due to the COVID-19 outbreak may need to turn to divestments. According to the survey, in April just over half (54%) of Asia-Pacific respondents say they would need to raise capital in response to the potential impact of COVID-19 on their business. The majority (64%) say they would seek to reduce their debt through divestments.
Furthermore, the survey indicates that for companies severely weakened by the COVID-19 crisis, distressed asset sales are likely to proliferate, with 58% of Asia-Pacific respondents saying they expect to see an increase in distressed divestitures over the next 12 months.
The COVID-19 pandemic has forced many companies to rely on digital infrastructure to communicate and function, and divestments have become an even more attractive option to fund investments in technology.
According to the survey, 56% of Asia-Pacific respondents say they are now more likely to divest for this purpose, an increase from 30% of respondents before the COVID-19 crisis. The increase in the need to fund new technology investments is consistent across all countries in Asia-Pacific, particularly in Greater China* – where 67% say they would divest to fund technology investment, up from 42% pre-COVID-19 crisis.
Supply chain diversification
The COVID-19 pandemic renewed attention on the potential vulnerability of global supply chains. According to the survey, 36% of global respondents plan to put more emphasis on their supply chains prior to divesting, up from 27% prior to the COVID-19 crisis. Before the pandemic, US-China trade tensions brought supply chains into focus for Asia-Pacific companies, and now these companies are further along in rethinking and re-engineering their supply chains. According to the most recent EY Global Capital Confidence Barometer, 67% of Asia-Pacific respondents say they have already taken active steps to restructure their supply chains.
Asset portfolios need to be reshaped for many companies in preparation for a post-COVID-19 world, an action more than half (54%) of Asia-Pacific respondents surveyed in April say they will take. While visibility of what the future looks like in the short-term is challenging, companies are starting to make adjustments based on macroeconomic scenarios emerging from the COVID-19 crisis.
Preparing for what’s next and beyond
According to the survey, Asia-Pacific companies are actively refocusing attention on preparing assets for sale as part of pursuing their medium-term divestment strategies, although respondents say strategies need to be adjusted. Most (53%) Asia-Pacific respondents say the economic impact of the COVID-19 pandemic will likely increase the price gap between what sellers expect and what buyers are offering. In addition, 52% of respondents say the impact would create more uncertainty regarding which assets to divest, which has significantly increased from 28% before the COVID-19 pandemic, and 46% say the level of divestment preparation is increasing.
“This year’s survey shows that divestment intention in Asia-Pacific remains significant, as companies are adjusting their strategies due to the impact of COVID-19. As the world starts to look beyond the pandemic, it is possible that the resurgence in global economic activity will be led by a core of Asia-Pacific economies.”
* Note: including respondents from Mainland China, Hong Kong SAR and Taiwan.
View the study online at ey.com/divest.
Follow us on Twitter: @EY_StrategyTran (#divestments).
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About the EY Global Corporate Divestment Study
The EY Global Corporate Divestment Study is an annual survey of C-level executives from large companies
around the world conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company.
This year we have included findings from a separate survey among 25 leading global activist investors,
providing their perspectives related to corporate divestments.
Survey focus areas:
- Impact of the crisis on divestment timing and strategy
- Forces driving divestments in the next 12 months
- Steps companies are taking to strengthen financial and operational resilience
- Perspectives from global activist investors
Results are based on an online survey of 1,010 global corporate executives and 25 global activist investors pre-
COVID 19 pandemic (conducted between November 2019 and January 2020), and an online survey of 300 corporate executives and 25 global activist investors following the onset of the COVID-19 crisis (conducted between April and May 2020). Seventy-five percent of respondents are CEOs, CFOs or other C-level executives.