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.