- Large proportion (SEA 79%, APAC 75%) of executives surveyed plan to divest in the next two years
- Over half (SEA 53%, APAC 56%) are more likely to divest to fund investments in technology, a sharp increase from pre-COVID-19 crisis levels
Divestment intentions remain at high levels in Southeast Asia (SEA), according to the EY 2020 Global Corporate Divestment Study. The survey identifies four key factors that will likely drive and influence corporate divestment intentions in Asia-Pacific over the next 6-12 months.
Conducted annually, this year’s study surveyed more than 400 Asia-Pacific (APAC) executives, including close to 100 in SEA covering Indonesia, Malaysia, Philippines, Singapore, Sri Lanka, Thailand and Vietnam, in the period before and after the onset of the COVID-19 pandemic.
Of the companies surveyed after the pandemic started, more than three-quarter (SEA 79%, APAC 75%) indicate they are planning to divest within the next two years, slightly higher than responses just before the pandemic (SEA 70%, APAC 74%). The survey also shows more than half (SEA 65%, APAC 59%) of the companies plan to divest in the next 12 months.
Abhay Bangi, EY Asean Sell and Separate Co-Lead, says:
“This study comes at a pivotal moment when business executives are facing unprecedent disruption. Interestingly, SEA companies are showing a high intention to divest to help reshape their portfolios and reposition for growth beyond the crisis. Sellers are also looking to fund new technology investments, especially digital enablers, as they reimagine their business models and prepare for the new normal.”
Strategic capital decisions
Companies whose access to capital markets is more constrained due to the COVID-19 outbreak may need to turn to divestments. According to the survey, in April, just over half (SEA 53%, APAC 54%) of respondents say they will need to raise capital in response to the potential impact of COVID-19 on their business, and they are doing so by reducing debt through divestments (SEA 70%, APAC 64%), as well as reshaping portfolio for a post-crisis world (SEA 70%, APAC 54%).
Furthermore, the survey indicates that for companies that are severely weakened by the COVID-19 crisis, distressed asset sales are likely to proliferate, with 65% of SEA respondents (APAC 58%) saying they expect to see an increase in distressed divestitures over the next 12 months.
The COVID-19 pandemic has forced many companies to rely on digital infrastructure to communicate and function, and divestments have become an even more attractive option to fund investments in technology.
According to the survey, more than half (SEA 53%, APAC 56%) of respondents say they are now more likely to divest for this purpose, an increase from 37% of respondents (APAC 30%) before the COVID-19 crisis.
Supply chain diversification
The COVID-19 pandemic renewed attention on the potential vulnerability of global supply chains. According to the survey, 36% of global respondents plan to put more emphasis on their supply chains prior to divesting, up from 27% prior to the COVID-19 crisis. According to the most recent EY Global Capital Confidence Barometer, 50% of SEA (APAC 67%) respondents say they have already taken active steps to restructure their supply chains.
Asset portfolios need to be reshaped for many companies in preparation for a post-COVID-19 world – an action more than half (SEA 70%, APAC 54%) of respondents surveyed in April say they will take. While visibility of what the future looks like in the short-term is challenging, companies are starting to make adjustments based on macroeconomic scenarios emerging from the COVID-19 crisis.
Preparing for what’s next and beyond
According to the survey, SEA and APAC companies are actively refocusing attention on preparing assets for sale as part of pursuing their medium-term divestment strategies, although respondents say strategies need to be adjusted.
Half (SEA 50%, APAC 53%) of respondents say the economic impact of the COVID-19 pandemic will likely increase the price gap between what sellers expect and what buyers are offering. In addition, 50% of SEA respondents (APAC 52%) say the impact would create more uncertainty regarding the assets to divest – and this sentiment has significantly increased from 32% (APAC 28%) prior to the COVID-19 pandemic. Forty-four percent of SEA respondents (APAC 46%) say the level of divestment preparation is increasing.
Daniel Tan, EY Asean Sell and Separate Co-Lead, says:
“Companies that are considering to sell their assets will benefit from dedicating more time and resources to prepare for scenario planning and assessing the implications of changing demand projections for strategy and capital reallocation.”
View the study online at ey.com/divest.
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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. This year we have included findings from a separate survey among 25 leading global activist investors, providing their perspectives related to corporate divestments.
Survey focus areas:
- Impact of the crisis on divestment timing and strategy
- Forces driving divestments in the next 12 months
- Steps companies are taking to strengthen financial and operational resilience
- Perspectives from global activist investors
Results are based on an online survey of 1,010 global corporate executives and 25 global activist investors pre-COVID 19 pandemic (conducted between November 2019 and January 2020), and an online survey of 300 corporate executives and 25 global activist investors following the onset of the COVID-19 crisis (conducted between April and May 2020). Seventy-five percent of respondents are CEOs, CFOs or other C-level executives.