Develop a clear view of how each business drives long-term value
Divestments should be more than just one-off decisions based on short-term financial factors.
of CEOs say they have difficulty explaining divestment rationale to the board and key stakeholders.
of CEOs acknowledge they should provide better guidance on what they regard as core and non-core business.
Top considerations in divestment strategy:
- Have a clear view on each business’s market and underlying growth in demand, competitive advantage, alignment to the company’s vision and potential for long-term value creation from a financial, customer, people and societal standpoint.
- Pursuing divestments can help accelerate investments in technology, new products and geographies to meet customer needs and fuel new growth for RemainCo.
- Even a strong-performing business that does not fit with your corporate strategy might be tying up capital that could be better deployed on higher-impact investments. Communicating this can help rally stakeholders behind a decision to carve out or spin off a business.
Learn more about how CEOs can develop a successful divestment strategy.
Leverage portfolio reviews to drive strategic divestment decisions
Portfolios should be reviewed at the business unit level to align with potential carve-out decisions.
of global CFOs say they changed their key performance indicator (KPI) rankings in the past three years.
of companies say activist activity in their sector prompted a review of strategic alternatives in the past 12 months.
Top considerations in portfolio reviews:
- Rigorously review the portfolio using a few key metrics related to how each business unit complements the enterprise strategy and contributes to total shareholder return through a combination of growth and return on invested capital.
- Take action once it’s clear a business should be divested, as the value of a business unit starved for investment can quickly erode.
- Evaluate strategic alternatives, including an asset-light approach, a staged exit or a joint venture with a strategic partner.
Learn more about how CFOs can elevate portfolio reviews to drive strategic divestment decisions.
Use the divestment as an opportunity to reimagine RemainCo
A large or highly entangled divestment is an opportunity to reimagine RemainCo while the organization is primed for change.
say they wish they had focused on realignment of RemainCo earlier in the divestment process.
of executives failed to broaden their efforts to improve RemainCo beyond simply eliminating costs.
Top considerations in RemainCo growth opportunities:
- Divestments are a catalyst to challenge the status quo and reimagine RemainCo for the future because the organization is already mobilized for change and the operating model is being re-examined.
- Re-evaluating your purpose and vision may require a redesign of your enterprise business archetype to focus on product, market, value chain, function or a hybrid model.
- The operating model should be changed to support the new archetype. All aspects should be challenged, including processes, systems, assets, people and third-party vendors.
Learn more about why divestments should be a catalyst for CEOs to reimagine RemainCo.
About the EY Global Corporate Divestment Study
The EY Global Corporate Divestment Study is an annual survey of C-level executives from large companies around the world, conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company.
Results are based on an online survey of 1,040 global corporate executives and 27 global activist investors (conducted between January and March 2021), including companies from 11 industries, with 88% of respondents holding the title of CEO, CFO or other C-level executive.
Aligning bold divestment decisions with long-term strategy can help CEOs increase stakeholder value and reimagine the remaining business. Download the 2021 EY Global Corporate Divestment Study (pdf) to learn more.