Divestitures will be a critical component of successful portfolio transformation as executives look to raise capital to fund technology-driven mergers and acquisitions changes.
Nearly a third of executives have increased the frequency of portfolio reviews in the past three years. Digital transformation is driving this accelerated frequency. The opportunities offered by new technology, as well as the threat from their more digitally savvy competitors and startups, are driving transformation plans. Boardrooms are also looking at the increased competition driven by sector convergence and technology-enabled changes to established business models.
With the economy improving, credit still freely available and corporate earnings at record levels, executives are making the hard decisions now to better equip their businesses for the future.
The actions taken by executives after their most recent portfolio review clearly signal that acting at speed is critical. Almost three-quarters (74%) expect to achieve their objectives within 12 months. Of those actions, more than a third (39%) identified an asset at risk of disruption to divest, and another third (32%) identified an underperforming asset to divest.
Current dealmaking conditions make this an opportune moment to divest. What may not suit one portfolio may be an ideal fit for another. There is also a healthy appetite by private equity (PE) to acquire selected divested assets.
However, with divestitures especially, the balance between speed of decision and execution needs to be judged finely in order to extract the most value and lay the foundation for future success. And as with the wider boardroom agenda, capital released through divestitures can be recycled into both existing operations and in M&A.