5 minute read 20 Feb 2020
How to boost deal value and position your company for growth

How to boost deal value and position your company for growth

Authors

Marc Cosaert

EY Belgium M&A Partner

Passionate about entrepreneurship, growth and M&A. Dedicated husband and father. Loves mountain biking.

Marcel Van Rijnswou

EY Belgium Transaction Diligence Partner

Passionate about digital and data analytics. Dedicated husband and father.

5 minute read 20 Feb 2020

Around the globe companies are looking for ways to unlock value. In a favourable deal market divestments are high on the strategic agenda.

Worldwide, the intent to divest remains at a record high. The latest EY Global Divestment Study revealed that 84% of companies are planning to divest within the next two years to reposition themselves for growth. Despite an uncertain macroeconomic and geopolitical landscape the deal market still looks promising for organisations with selling or carve-out plans.

“We see similar trends for the Belgian market,” says Marc Cosaert, EY Partner M&A Advisory and Sell & Separate services leader. “A lot of larger corporations are concentrating on their core business activities and sell subsidiary assets or divisions to create sharper focus and more agility. But we also see family-owned companies with succession problems that decide to sell the family business.

“Add to this record levels of dry powder in private equity  (PE), and you have all the ingredients for an active deal market. But a market favourable to sellers doesn’t necessarily equal the best deal value. Preparing for success with the right portfolio strategy and divestment execution is key to stay ahead in a robust yet volatile market.”

Here, we take a look at some of the main trends that EY experts observed over the past months combined with insights on how companies can position themselves for the next wave of private equity, cross-sector and corporate buyers to boost deal value.

Navigate uncertainty and reposition for a different future

In the EY Global Capital Confidence Barometer of last October, 64% of the respondents stated they are actively planning to respond to ongoing geopolitical, legal and economic challenges. Uncertainties like regulation, tariffs, NAFTA and Brexit weigh heavy on the C-suite. Yet, 54% remain optimistic, not expecting an economic slowdown in the near-term. The majority of executives (68%) even expect that the prolonged deal making upcycle will continue, fuelled by the negative interest rate environment.

Depending on their sector or location, some companies will be more or less sensitive to how these challenges impact their divestment plans. What is the best strategy to navigate these uncertainties?

  • Go for bespoke: continually unlock and assess the impact of challenges and opportunities by conducting regular portfolio reviews and identify strategic areas for growth.
  • Keep options open: highlight risks to current operations with scenario plans and threat analyses. Understand your ecosystem and how your business performance compares to those of your peers. 
  • Invest for tomorrow today: use divestments to raise capital for growth and technological innovation. Invest in talent and technology that underpins future growth. Acquisitions will often offer a solution to secure these in-demand assets.

Prepare for divestment success

Divestment levels have increased as companies are learning to cope with disconnected challenges. Yet, in the last EY Global Divestment Study, 49% of executives say they delayed or deferred their last divestment because of a lack of understanding of regulatory requirements. And 63% states they held onto assets too long when they should have divested them, while 46% of sellers describes their last divestment as opportunistic. EY calculated that unplanned divestments are four times less likely than planned divestments to achieve a sale price that meets expectations.

“Timing and preparation are vital when it comes to getting the right price,” says Marcel van Rijnswou, EY Partner Transaction dilligence. “Successful sellers focus on making their businesses divestment-ready. They create the necessary room to optimise according to market conditions, tax efficiencies, anti-trust considerations and net proceeds targets. They address regulatory obstacles at an early stage of the divestment process to reduce delays and transition cost overruns.”

Key takeaways to prepare for a successful divestment:

  • Articulate a clear value story around growth opportunities, capital requirements, the management team and the overall business going forward.
  • Always be divestment-ready. Combine a well-defined portfolio strategy with the right resources and expertise.
  • Start early. By taking the critical steps to prepare a business for sale, and addressing considerations from a widening pool of buyers, companies can improve outcomes.
  • Make tax a top consideration. Tax complexity can add time and erode value if not addressed early in the process.

Be better, faster and go deeper with analytics

Analytics creates significant opportunities to better understand the key value drivers of a business’ equity story. It also helps to create trust for the potential buyers by providing greater insight on the (future) performance of a business.

“But many companies struggle with leveraging the power of their data, because they are combining different analytics products and cloud services. Opt for a flexible analytics tool that creates one single source of truth,” explains Marcel van Rijnswou. “With an unified architecture you can master and edit all existing data on one centralised platform, from internal operational to external sales data. Everybody will use the same data in real time.”

“An integrated data analytics platform, like EY Capital Edge, provides a broad and in-depth view of the complete divestiture life cycle. It’s customisable to each unique situation and brings speed in giving clients a real-time overview of the complete divestiture process. It also speeds up decision making as it can create various analyses, different deal scenarios and forecasts at any given moment.”

Close the price gap by focusing on a wider buyer landscape

“We often see a significant gap between what sellers think their business is worth and what buyers are willing to pay,” says Marc Cosaert. “Private equity firms are actively pursuing quality assets which is raising the competition. Adding PE to your potential buyer’s list can certainly lead to more deal value. They are value creation champions.”

In the EY Global Divestment Study, 38% of the interviewed executives said that involving a PE buyer led to an increase in purchase price. But with a wider buyers pool, there are some important pointers to keep in mind.

  • Create a credible value story that addresses buyers’ needs through supporting data and advanced analytics. Buyers often look at historical earnings to discount for short-term risks. 
  • Present a stand-alone operating model for the business. Sellers that do this are twice as likely to achieve a higher price and secure their deal faster. 
  • Identify the buyer’s value needs early and translate data driven insights into synergy potential. For strategic buyers, synergies can be the competitive advantage in a bidding process.

Regardless of geopolitical or economic challenges, by proactively managing their business portfolios and actively managing the complete divesture cycle, companies can position themselves for growth and create long-term value for their organisations and all its stakeholders.

  • Connecting the dots of the divestiture cycle

    Sell & Separate is one of EY’s five Connected Capital Solutions. Connected Capital Solutions help clients drive inclusive growth by focusing on their capital and transaction strategy through to execution to drive fast-track value creation.

    With the Sell & Separate Solution, an integrated team of EY experts supports companies with better divestments that help improve value from the sale of an entire company, carve-out, spin-off or joint venture. Our experts assist companies with strategic portfolio management to execution across the entire divestiture life cycle, including strategy, separation and stabilisation upon deal closing.

    EY has been recognized as a market leader in divestitures consulting by ALM Intelligence in its 2019 report, The ALM Vanguard: Transactions – Divestitures Consulting.

    The report evaluates the overall depth, breadth and client impact of divestiture services, which include strategy, financial due diligence and M&A management. The market leaders, according to the report, combine robust complexity management capabilities with a well-integrated service offering centred on speed, accuracy and cost efficiency.

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Summary

The intent to divest remains at a record high, with companies worldwide using divestment as a strategic tool to reposition themselves for growth. Despite uncertain macroeconomic and geopolitical conditions, organisations are experiencing a favourable deal market. With the right portfolio strategy and divestment execution, companies can prepare for a widening pool of private equity, cross-sector and corporate buyers to maintain a competitive bidding process and maximise deal value.

About this article

Authors

Marc Cosaert

EY Belgium M&A Partner

Passionate about entrepreneurship, growth and M&A. Dedicated husband and father. Loves mountain biking.

Marcel Van Rijnswou

EY Belgium Transaction Diligence Partner

Passionate about digital and data analytics. Dedicated husband and father.