Divestments are top of mind in corporate strategies as companies look to extract maximum value from strategic sales, according to EY’s 2016 Corporate Divestment Study, an annual survey of corporate and private equity executives.
According to “Learning from private equity: experts at extracting hidden value,” only 3% of companies do not expect to make any divestments in the next two years, and 41% say while they are not actively pursuing a divestment they are open to opportunities.
“Divestments can be a strategic way to generate long-term growth,” says Doug Jenkinson, Partner in EY’s Transaction Advisory Services. “They are increasingly being used to fund new opportunities, to stay ahead of changes in consumer preferences and to drive innovation. In 2016, companies are making astute reallocation of capital and a disciplined review of portfolio assets a priority.”
Among companies that completed a divestment last year, 37% re-invested the divestment proceeds back into the core business, 24% invested in new products, markets or geographies and 6% made an acquisition.
Canadian businesses say their biggest obstacles include making portfolio review a strategic imperative and dedicating specialized resources to the process.
Activists continue to be on the prowl, with technology companies making up 33% of activist targets in North America last year. Yet 39% of technology companies say they are only moderately prepared for activist threats, and a worrying 17% are not prepared at all. 60% say valuation considerations were the most important factor in motivating them to consider a divestment. More than half say intellectual property issues are among the top challenges to divestment in the sector.