Divestments leading to better-than-expected valuations
In a world that seems to be ever more complicated, Canadian companies are actively pruning their portfolio of businesses. According to EY’s 2017 Corporate Divestment Study, an annual survey of corporate executives, 73% of survey respondents said they were likely to divest as a result of macroeconomic volatility.
“Canadian companies are reaching deep to identify non-core businesses,” says Doug Jenkinson, EY Canada’s Divesture Advisory Leader. “When they’ve divested, 51% reported finding their divestment led to a valuation of the remaining business that exceeded their expectations.”
According to EY’s report, Can divesting help you capitalize on disruption?, Canadian companies outperform their global peers. In fact, 81% of Canadian companies believe they have been effective in continuing to create value in their businesses subject to a divestment, compared to only 67% of global respondents.
“Canadians are ahead of their global peers when it comes to using analytics, too,” says Jenkinson. “86% of Canadian respondents said they plan to use sophisticated techniques such as predictive analytics to assist in their divestment efforts, which is more than 10% points higher than their global peers.”
At the same time, technological change is weighing on the minds of Canadian businesses; 54% of participants noted this as a reason for considering a divestment, and 46% planned to redeploy divestment proceeds into digital capabilities.
Looking forward, 73% of Canadian companies plan more regular portfolio reviews to allow them to better react to the disruptive forces facing their business. Digital is not only a reason for divesting, but also to tool to facilitate the process.
How does your divestment strategy compare with other leading companies? Explore our global benchmarking tool: https://www.ey.com/divest
About EY Global Corporate Divestment Study
EY Global Corporate Divestment Study focuses on how companies should approach portfolio strategy, improve divestment execution and future-proof their remaining business amid massive market disruptions. The results of the 2017 study are based on more than 900 interviews with corporate executives and 100 private equity executives worldwide surveyed between October and December 2016 by FT Remark. Key sector findings can be found at ey.com/divest. #EYGDS
Global sector reports are also available:
- Consumer Product and Retail: According to the study, nearly half of consumer product and retail companies plan to divest in the next two years, driven primarily by changing customer preferences, tighter margins due to increased competition and growth stagnation in various categories.
- Financial Services: 58% of financial services companies globally expect to make a divestment in the next two years, higher than across all sectors. At the same time, a full 72% are considering a JV or alliance with a FinTech business to address disruptive threats or to reduce costs.
- Technology: 80% of tech executives say digital transformation is influencing divestment plans, while 67% cite underlying industry trends, such as cloud and software as a service, as driving factors.
- Life Sciences: 56% of life sciences executives say the need to generate funds for investment in core businesses was one of their major reasons for narrowing their portfolio.
- Private Equity: 86% of private equity funds do not have a systematic exit process and playbook to maximize value on all exits. And 69% do not consistently dedicate resources to evaluate those opportunities in the first place.
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