74% of respondents used funds from their most recent divestment for growth
TORONTO, April 16, 2015 /CNW/ - Divestments will be a core component of companies' capital strategy this year, as management teams look to improve portfolio performance and shareholder returns, according to EY's Global Corporate Divestment Study, Closing the deal: strategies to increase speed and value.
Traditionally, the perception of a divestiture has been negative, but EY's recent survey shows that executives see divestment as a positive step to help grow their company — 74% of respondents used funds from their most recent divestment for growth. Specifically, 34% invested the funds back into the core business; 23% invested in new products, markets, or geographies; and 17% made an acquisition. The financial benefits of divestments proved to be undeniable — 66% of companies saw an increased valuation multiple in the remaining business after their last asset sale.
"Letting go in order to grow is a trend among companies world-wide, and we're seeing similar activity in Canada," says Doug Jenkinson, a partner in EY's Transaction Advisory Services practice. "Capital markets are rewarding companies for not being afraid to focus on their core business and becoming true experts in their field."
According to the survey, 46% of executives initiated their most recent divestment because the assets weren't part of their core business.
The survey also found that executives world-wide are expecting divestment activity to pick up in the coming year. More than half of survey respondents (54%) expect the number of strategic sellers to increase in the next year. In addition, 47% of companies say that even if they weren't looking to divest, they would be willing to sell at a premium in the range of 10% to 20%. Buyers are also on the hunt. Nearly half (42%) of companies expect the number of unsolicited approaches to increase in the next year.
"Divestment is no longer about failure, it's about redeploying capital and focusing on growth where growth is available," adds Jenkinson. "Successful companies will review their portfolio regularly and look for opportunities for strategic divestment."
Yet 58% of executives acknowledge that they don't conduct strategic reviews frequently enough. In addition to global survey results, the report features best practices for advanced divestment planning, including regular portfolio reviews, sophisticated analytical tools and a thoughtful divestment roadmap.
View the report online at ey.com/divest.
About EY's Global Corporate Divestment Study
EY's Global Corporate Divestment Study analyses companies' top questions and concerns relating to portfolio review and divestment strategies and provides insights on how to maximize divestment success. The results of the 2015 study are based on more than 800 interviews with corporate executives surveyed between November 2014 and January 2015 by FT Remark, the research and publishing arm of the Financial Times Group. Key sector findings can be found at www.ey.com/divest.
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
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