Digital disruption, transformational shifts in customer preferences and sector convergence are forcing companies to make bets on future technology now. The result of this focus is a significant increase in companies divesting assets to fund digital growth strategies.
Those that understand how evolving technology will affect their business over the next year are three times more likely to achieve an above-expectation valuation multiple on their remaining business post-divestment.
EY’s Global Corporate Divestment Study is based on interviews with 900 senior corporate executives and 100 private equity executives. The study focuses on how companies should approach portfolio strategy, improve divestment execution and future-proof their remaining business amid rapid technological change.
A record number (87%) of companies are planning to divest in the next two years — strikingly higher than the 43% reported in our 2017 study.
Deciding to divest
Companies that conduct portfolio reviews annually are twice as likely to exceed performance expectations for divesting at the right time. However, many businesses are at risk of acting too slowly — 56% of companies indicate they have held onto assets too long.
Improving divestment results
While 78% of companies prioritized securing the best price over speed of execution in their most recent divestment, achieving that expected value can be a significant challenge. Most sellers think the price gap between buyer and seller expectations is between 11% and 20%.
Strengthening the business to be divested, developing the equity story and executing a seamless separation process should be the highest priority for any seller. To maximize shareholder value and achieve divestment success, companies need to focus on critical value drivers in divestment planning and execution:
- Spend time up-front to properly capitalize and operationalize the business for potential buyers.
- Sellers can improve negotiations through greater transparency and using analytics to avoid learning something from the buyer about their business that they should already know.
- In addition to preparing a strong value story, creating an effective stakeholder communication plan and focusing on a quality management team can improve divestment speed and value.
All of these critical steps will ultimately improve divestment decisions, maximize sale value and help transform your company — here and now — into what you want it to look like tomorrow.
Read the full report here.
EY legal services contact:
Richard Norbruis, Global Transaction Law Markets Leader.