Our latest Global Corporate Divestment Study focuses on how media & entertainment (M&E) companies should approach portfolio strategy, improve divestment execution and future-proof their remaining businesses amid massive market disruptions. One-third of M&E companies globally (33%) plan to divest in the next two years, driven primarily by changing consumer preferences, increased competition, digital transformation and stagnation in traditional media platforms.
Changes in technology are the biggest factor driving M&E companies’ divestment strategies, with 73% saying that these changes are influencing their plans. Other factors, include macroeconomic volatility, geopolitical uncertainty and shareholder activism. Companies are selling non-core and slow-growth businesses to fund investments in their core portfolios and to build digital capabilities.
Our study overwhelmingly shows that divestments pursued primarily in response to macroeconomic and geopolitical instability result in suboptimal outcomes. The data also reveals that companies feel pressured to move quickly. But prioritizing speed often results in a divestment that does not achieve sellers’ expectations. Conversely, divestments triggered by technology-related opportunities or risks often yield outcomes that exceed expectations.
External disruptions may trigger tactical change, but the most important focus should always be long-term strategy and business fundamentals. Executives say the most important strategic reason for their last major divestment is a unit’s weak competitive position in the market (36%), followed by business not being considered core (23%).
Despite the prevalence of opportunistic divestments, companies that divest because they need to fund future cash investment requirements are 51% more likely to have a higher valuation multiple post-sale. And those that divest non-core assets are 48% more likely to have a higher valuation multiple. We see these results because markets value companies that have a clear vision and are seen to be acting on that strategy.
With the entire value chain being disrupted — from content production to distribution — “digital transformation” has become a major focus for the entire C-suite. Leading organizations are talking less about “digital strategy” and more about “business strategy in a digital world.” Digital disruption forces organizations to take a holistic view of their capital decisions, including divestments. Specifically, companies should:
Fifty-four percent of global M&E companies say they have held on to assets too long. Companies need to take a data-driven, on demand approach to portfolio review in order to generate buyer interest for assets and act confidently if the imperative to divest becomes unavoidable. Companies should conduct an in-depth portfolio review once or twice a year and quarterly performance reviews to understand where they are against plan, market dynamics and competitor actions.
Companies should focus on a holistic approach to goal-setting, communicate M&A strategy and involve operations teams in strategic thinking. Most companies (57%) say they plan to formalize the responsibility and communication between the investment (M&A) and operational roles. This step is critical because their key performance indicators (KPIs) are often different and conflicting. For example, the relevant M&A KPI may be to achieve maximum value. However, if an asset sale, in isolation, removes scale and therefore utilization from a production facility, this could adversely affect an operational KPI based on capacity utilization or return on assets employed.
To increase competitive advantage, companies must take advantage of new ways to reduce costs and enable growth. Particularly as companies consider divestments, some technologies can greatly reduce stranded costs and the need to right-size the business post-sale.
"Media and entertainment companies operate on the front lines of the digital revolution. Technology and innovation are driving change in customer preferences, simultaneously creating opportunities for new growth and pressuring longstanding business models. Success in this dynamic environment requires an active portfolio strategy that steers capital efficiently to the most promising areas while pulling back – via strategic divestments – from non-core or declining operations."