Despite geopolitical uncertainty, UK companies actively evaluate opportunities to streamline portfolios.
Divestments remain high on the UK corporate agenda. A fluid outlook can hinder deals, but it can ultimately promote activity as companies adjust their portfolios to new realities. Moreover, whatever the geopolitical reality, companies still need to adapt to rapid structural change. In such a changing environment, a sharp focus on execution is vital.
With 88% of UK companies intending to divest within the next two years — 72% in the next 12 months — this deal activity will continue.
The necessity to streamline portfolios and reinvest capital, to build new capabilities or return this to shareholders, is once again a significant theme. Nevertheless, UK disposal intentions, while historically high, have softened by 11 percentage points in the last year. This could be due to a widening gap between seller and buyer price expectations and a greater priority given to achieving target valuations over exit speed. Vendors clearly aren’t prepared to sell at any price.
This widening value gap underscores the need for sellers to focus on measures that maximize deal value. The EY Global Corporate Divestment Study shows the clear benefits of creating a clear deal perimeter (financially, operationally, commercially, legally, and from tax and regulatory angles) and forming a compelling case for each buyer.
Waiting on Brexit
Brexit is still an unknown quantity. Indirectly, a weaker pound has made UK assets more affordable — especially for US buyers, bolstered by the stronger dollar and US tax reform — but there is still the big question of what comes next.
Direct Brexit deal impacts are yet to come. Over three-quarters of UK companies say it may influence their plans to divest in the next year and 61% say that macroeconomic and geopolitical triggers will play into their divestment decisions, compared with 52% at a global level.