Increasing value and resiliency across the enterprise
Following the crisis, companies will continue to pursue asset light objectives throughout the value chain, mainly by identifying which assets and capabilities are core to delivering value to their customer base right now.
For example, sellers may find a path to greater operational agility by transitioning their manufacturing operations to a contract manufacturer rather than carving out an entire business unit and disposing of a valuable brand. Others, due to their experience with COVID-19, may look to build redundancy in key business processes but choose an asset light path including joint ventures (JVs) or other partnerships that avoid a balance sheet impact. Still other companies that are intensely focused on reducing costs may want to reduce complexity and release capital by transitioning key pieces of their support operations, such as inside sales, to an external partner.
In light of economic disruption, asset light is by no means exclusive to supply chain areas such as manufacturing, warehouses and distribution centers, reverse logistics and warranty and return services. It can help extract value from other value chain areas such as the front office, including research and development, sales and field operations, as well as more traditional back-office functions such as information technology (IT) infrastructure, procurement and other areas. Importantly, the financial benefits of becoming asset light can be significant. According to the EY 2020 Global Corporate Divestment Study, companies that transitioned manufacturing ahead of a sale were 17% more likely to exceed expectations on the valuation multiple of the remaining business. They are also more likely to exceed expectations on the price of the divestment.