Allocating capital in a connected way enhances value
Executives cite investing in existing operations and transformational investment in digital and technology as their top capital allocation priorities. The focus on their own ecosystem through a variety of lenses (digital, geopolitical, economic and demographic) should enable executives to pivot quickly as markets evolve.
Taken together with the intention to restructure their existing businesses through a combination of acquisitions and divestments, executives are signaling a period of active portfolio reshaping to accelerate growth.
Executives have a very balanced outlook on decisions to improve capital structure, make acquisitions and return capital to shareholders.
Businesses should embrace a robust and structured approach to capital allocation that will better position them to capture value in the current disruption-led environment. They need to develop the flexibility to quickly assess new and emerging investment opportunities.
Activist pressure is fueling more regular assessments and reshaping of portfolios
Many executives of public companies are experiencing pressure from activist investors. This is not new. The prime motive of the activist is to achieve an increased return through improved shareholder value. However, what may be surprising is that our respondents see activists agitating for M&A more so than divestments. This isn’t pressure to do deals for deals’ sake but for value creation.
Activists will generally do a tremendous amount of homework before investing and setting out their strategic view. Executives should engage activists to assess the merits of their business case. Activists are also likely to be media savvy, so companies need to articulate an equally compelling and clear public narrative.