Can divesting help you capitalize on disruption?

Can divesting help you capitalize on disruption?

Global Corporate Divestment Study 2017

Our study reveals a dealmaking environment faced with disruptive challenges and senior executives craving an information advantage. Divestments are a fundamental part of portfolio strategy, especially in a volatile and disruptive environment. Nearly half of companies are planning to divest in the next two years. Here is what the data tells us leads to divestment success.

Paul Hammes
EY Global Divestment Leader

Global divestment view

This is an especially timely Global Corporate Divestment Study. Unprecedented geopolitical uncertainty and technological change are making portfolio and divestment strategy more vital than ever.

Faced with these dynamics, our clients are trying to figure out where it is profitable to maintain a geographic footprint versus when it is time to focus on different markets — and how much it would cost to make a move. They’re also considering how to free up capital to invest in innovation.

We are seeing many companies flee geographies because of short-term fears and wind up with suboptimal valuations on their businesses. We also are seeing companies enamored of new technology without fully considering its effect on the entire portfolio of businesses. But the basis of such transformative decisions must always be a company’s long-term strategy.

So, how should successful companies use divestments as part of their portfolio strategy? Our survey finds that nearly half of companies plan to divest in the next two years. A divestment can empower a company to put capital to better use, enable a leaner operating model and enhance shareholder value.

Steve Krouskos
EY Global Vice Chair Transaction Advisory Services

Perspective on market fundamentals

With mergers and acquisitions near record levels in 2016 and a dynamic deal market expected in 2017, M&A is a cornerstone of today’s corporate route to growth. And where there is a buyer there is a seller; companies reshaping themselves for the future are not only acquiring but also divesting.

As technology transforms business models — blurring sector lines and spurring change in consumer preferences — buying rather than building innovation is often the preferred strategic path to success. In tandem, successful companies are strategically divesting non-core or underperforming businesses in order to fund growth. They are also selling assets to refocus and re-energize their core business.

Market fundamentals will likely fuel further recycling of assets. Economic growth is modest and uneven globally and geopolitics has entered a new, uncertain phase. And in a world where product innovation happens daily, executives are perpetually setting new strategic directions. Against this backdrop, those that use divestments to strategically change what is in their control will become the disruptors, rather than the disrupted.