How divestitures can supercharge your strategy

6 minute read 15 Feb 2021
By Mitch Berlin

EY Americas Vice Chair, Strategy and Transactions

Dedicated to finding and capturing the most value from every transaction. Passionate advocate for diversity and inclusiveness as the cornerstones of successful teams and businesses.

6 minute read 15 Feb 2021

To succeed, companies need the ability to generate capital for reinvestment in the next generation of technological systems and solutions.

CEOs can look across their portfolios and use divestitures to both fund re-investment and next-gen tech, as well as re-imagine their core business. The critical dilemma CEOs face right now is what to sell, when to sell and how best to structure a deal that supports their long-term vision for the organization.

Successful divestitures can supercharge digital transformation. Where a company sits on the digital maturity curve is going to be an indicator of how successful they're going to be in the near term. The fastest way to get up that curve is to acquire that technology versus building it in-house.

According to EY-Parthenon research, about 70% of companies plan to use divestments to fund those investments. No business should be considered sacred right now, especially if an asset has a value greater to a third party. Companies should constantly evaluate all products, brands, and geographies, and consider exiting if it makes sense.

History supports this idea. Companies that divested to invest during the 2008 financial downturn fared better than those that didn't — seeing a 24 percentage point total shareholder return outperformance in the eight years following the Great Financial Crisis.1

A divestiture could be an opportunity to re-imagine the remaining core business and make sure that it's fit to deliver long-term value.

But whether it's a traditional sale, a joint venture or an asset-light deal carving out part of a business's infrastructure and contracting with the business, waiting too long will lead to value erosion.

To achieve the best outcome, CEOs should focus on robust governance, efficient talent allocation, and maintaining effective communication and change management.

Created in collaboration with CNBC Brand Studio. 

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Summary

Divestitures may be a key tool for generating capital to invest in future technologies and capabilities. Portfolio review should be a regular exercise, with all products, brands and geographies under consideration for exit if they don’t fit the core. Don’t wait to act once you’ve identified an asset to divest, lest you lose value.

About this article

By Mitch Berlin

EY Americas Vice Chair, Strategy and Transactions

Dedicated to finding and capturing the most value from every transaction. Passionate advocate for diversity and inclusiveness as the cornerstones of successful teams and businesses.