The EY 2020 Global Corporate Divestment Study and lessons learned from the last crisis show how divesting can help companies accelerate out of a slowing economy.
As executives consider what comes following the crisis, they may need to make hard choices about which businesses, and type of business model, they need to capture new potential growth.
Will they embrace an asset-light model, migrating non-core assets and operations to an ecosystem of strategic partners? Will they invest in a fully automated production model combined with an artificial intelligence (AI)-enabled workforce? Or will they instead retrench in-house, with the comfort of control providing an illusion of protection against future shocks?
Those that leverage industry trends and combine them with lessons from the last major financial crisis stand a better chance of capitalizing on the eventual upturn.
Making bold decisions: lessons learned from the global financial crisis (GFC)
Looking at the immediate aftermath of the GFC of 2008-2010 provides insight into what may be the best route for companies to undertake as the economy begins to open up after a severe downturn.
More than a decade later, many have forgotten the sharp impact of the GFC on the global economy and deal markets. As credit markets froze, many companies went into their own self-enforced lockdown. They stopped their divestiture programs, focusing instead on internal cost management and preserving cash. This led to a sharp fall in global dealmaking. Today, companies may acknowledge the potential of this failure: 72% of companies in the EY 2020 Global Corporate Divestment Study say they’ve held onto assets too long.
During the GFC, this lack of appetite to rebalance portfolios through divesting assets was mainly driven by the steep decline in valuations being paid for assets.