Divestment appetite in Southeast Asia more than doubles to fund technological investments

Singapore, 19 March 2018

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  • 88% of companies in Southeast Asia plan to divest in the next 24 months
  • 68% say changing technology is directly influencing divestment plans
  • 80% indicate tax policy changes are major geopolitical divestment drivers

Intentions to divest in Southeast Asia are at record levels, driven by ongoing pressure to evolve existing business models amid rapidly advancing technology. These are the findings of the EY Global Corporate Divestment Study 2018, an annual survey of 1,000 corporate executives worldwide, including over 70 in Southeast Asia, conducted between October and December 2017.

The divestment appetite in Southeast Asia has more than doubled, with 88% of companies planning a divestiture in the next two years – up from 26% in 2017– with a business unit’s less competitive position in its marketplace being a key driver. More than two-thirds (68%) said that their decision to divest was directly influenced by the evolving technological landscape. About half (51%) of Southeast Asian companies said that the need to fund new technology investments will make them more likely to divest – using the proceeds to improve operating efficiency (79%), and address changing customer needs (87%) in their core businesses.

Abhay Bangi, Partner, Transaction Advisory Services, Ernst & Young Solutions LLP says:
“The boards of many of the largest companies in Southeast Asia are carefully evaluating their choices in the face of ongoing disruption happening in their industry, leading to portfolio rationalization decisions and divestment of businesses with eroding competitive advantage, and using the proceeds to invest in emerging technology to future-proof remaining parts of the company.”

More than two-third (68%) of divestments are prompted by opportunistic, unsolicited bids, according to the survey. The survey found that those that conduct portfolio reviews annually are twice as likely to exceed performance expectations for divesting “at the right time.” Almost half (41%) of companies in Southeast Asia assess their portfolios twice a year to determine the business units or brands to grow or divest. Businesses are motivated to shed non-performing assets that they believe may have sat too long in their portfolios with close to half (47%) of executives admitting they held these assets longer than they should have.

The survey also found that the use of analytics is strongly on the rise. Seventy percent of Southeast Asian respondents have used advanced analytics to understand the true value of a non-core asset in their last divestment. Companies that consistently apply data-driven analytics to decision-making are 33% more likely to exceed price expectations in their divestments.

Geophin George, Partner, Transaction Advisory Services, Ernst & Young Solutions LLP adds:
“For companies that decide to divest, it is important that they plan early with the right level of senior management focus and consider the asset’s value attributes from a potential buyer’s perspective. They should also consider preparing tailored diligence materials to support the value proposition to buyer pools to maximize value on exit.”

Macroeconomic and geopolitical triggers are still driving divestment decisions in Southeast Asia. The tax reforms offer a new opportunity to revamp corporate strategies, with 90% highlighting tax policy changes as one of the most significant geopolitical shifts that may affect plans to divest. However, more than half (57%) of companies report that lack of preparation in dealing with tax risk caused value erosion in their last divestment.

Bangi says: “In the current environment, companies should consider using creative deal structures. Many conglomerates in Southeast Asia are contemplating spinning off business units to unlock value for their shareholders while retaining exposure to the asset. Partial divestments, joint ventures, revenue sharing and collaboration agreements could be other ways of doing this.”

View the study online at ey.com/divest.

Follow us on Twitter: @EY_TAS (#divestments) and Facebook: EY Transactions.

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About EY Transaction Advisory Services (TAS)

How you manage your capital agenda today will define your competitive position tomorrow. We work with clients to create social and economic value by helping them make better, more-informed decisions about strategically managing capital and transactions in fast-changing markets. Whether you're preserving, optimizing, raising or investing capital, EY Transaction Advisory Services combine a set of skills, insight and experience to deliver focused advice. We can help you drive competitive advantage and increased returns through improved decisions across all aspects of your capital agenda.

About the EY Global Corporate Divestment Study

The EY Global Corporate Divestment Study focuses on how companies should approach portfolio strategy, improve divestment execution and future-proof their remaining business amid rapid technological change. The results of the 2018 study are based on more than 900 interviews with corporate executives and 100 private equity executives worldwide surveyed between October and December 2017 by FT Remark, the research and publishing arm of the Financial Times Group. Key sector findings can be found at ey.com/divest.