While geopolitical uncertainty dominates the headlines – from tariffs to trade wars, Brexit to border control – European companies are embracing divestment to strengthen their competitive edge and execute on their transformation agenda. Divesting non-core businesses is seen as a priority to secure a more nimble operating model that enables execution on their capital agendas.
According to the EY Global Corporate Divestment Study, 84% of European companies surveyed intending to divest within the next two years (the majority planning to do so in the coming 12 months), executives are streamlining operating models for better agility. Accelerating corporate strategies to adapt to technology-driven business models is helping companies reposition themselves for future growth opportunities.
Digital disruption is fast-forwarding the pace of transformation. Seventy-four percent of European executives say that changes to the technology landscape are directly influencing their divestment plans. Eighty-one percent of European companies expect the number of tech-driven divestments to rise in the coming 12 months – nearly 20 percentage points up from last year, with 4 out of 10 respondents aiming to fund new technology investments from a divestment.
Executives divest to future-proof growth
Companies are increasing their rigor around portfolio management and sharpening their focus on building a growth strategy around core profitable operations.
With this, more companies are divesting for strategic reasons as opposed to shortcomings or failures in a business: European companies that cite a unit’s weak competitive advantage as a driver in their latest divestment fell to 68%, down from 87% the previous year.
The second highest-rated driver for divestment is streamlining the operating model (65%), giving companies the ability to execute more nimbly on their capital agendas. Part of this equation is reinvesting the funds from a divestment to effectively strengthen a company’s competitive edge. Sixty-one percent of European executives are prioritizing investing sale funds in new products, markets or geographies, with 58% investing back in the core business.