Divestment appetite in Asia-Pacific more than doubles to fund technological investments
Melbourne, 22 March 2018
- 83% of companies in Asia-Pacific plan to divest in the next 24 months
- 67% say advancing technology is directly influencing divestment plans
- 87% indicate tax policy changes are major geopolitical divestment drivers
Intentions to divest by Asia-Pacific-based companies are at record levels – driven by ongoing pressure to evolve existing business models amid rapidly advancing technology, according to the EY Global Corporate Divestment Study, an annual survey of more than 900 executives worldwide.
The divestment appetite in Asia-Pacific more than doubled, with 83% of companies planning a divestiture in the next two years – up from 35% in 2017 and 17% in 2015. A significant majority (83%) of executives say the need to fund new technology investments will make them more likely to divest using the proceeds to improve operating efficiency. Additionally, 85% said they planned to divest to address changing customer needs in their core businesses.
Stephen Lomas, EY Asia-Pacific Divestiture Advisory Services (DAS) Leader, says:
“More than ever, corporate executives are asking themselves what they need to do to ensure their organization remains competitive in an environment of significant technological change and disruption. There is a sense of urgency amongst those executives who see technology altering the competitive landscape and recognize that their organization needs to adapt quickly. With access to new analytics technology that provides deeper insight into the performance of their business, executives feel more comfortable than ever to undertake divestments to fund growth initiatives. This is a real change from previous years.”
A relative weak competitive position of a business unit in its marketplace is the primary driver for divestments, as cited by 82% of Asia-Pacific respondents in the latest findings. Businesses are increasingly motivated to divest non-performing parts of the business that they believe have remained in their portfolio for too long, with more than half (59%) of executives admitting they held these assets longer than they should have.
Close to three-quarters (71%) of divestments are prompted by opportunistic, unsolicited bids, according to the survey. The survey also found that those that conduct portfolio reviews annually are twice as likely to exceed performance expectations for divesting “at the right time.” Almost half (46%) of companies in Asia-Pacific assess their portfolios twice a year to determine the business units or brands to grow or divest.
Lomas says: “The use of analytics is on the rise. Three-quarters (74%) of our regional respondents used advanced analytics to understand the true value of a non-core asset in their last divestment. And a majority (92%) say they will use reporting and analytics to support their next divestment. This is good news for the region. Companies that consistently apply data-driven analytics to decision-making are 33% more likely to exceed price expectations in their divestments. And if you receive an unsolicited approach for part, or all, of your business, how do you respond if you do not already understand its value to you?”
Macroeconomic and geopolitical triggers are still driving divestment decisions in Asia-Pacific. Tax reforms offer a new opportunity to revamp corporate strategies, with 87% of respondents highlighting tax policy changes as one of the most significant geopolitical shifts that may affect their plans to divest. However, more than two-thirds (67%) of executives report that lack of preparation in dealing with tax risk caused value erosion in their last divestment.
Lomas says: “In the current environment, some companies are still unsure whether to divest a business – nervous that they might miss some longer term value. In these circumstances, Asia-Pacific companies should consider using creative deal structures – such as partial divestments, joint ventures, revenue sharing or collaboration agreements – to bring in partners that together may enhance the overall business value.”
View the study online at ey.com/divest.
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About the EY Global Corporate Divestment Study
The EY Global Corporate Divestment Study focuses on how companies should approach portfolio strategy, improve divestment execution and future-proof their remaining business amid rapid technological change. The results of the 2018 study are based on more than 900 interviews with corporate executives and 100 private equity executives worldwide surveyed between October and December 2017 by FT Remark, the research and publishing arm of the Financial Times Group. Key sector findings can be found at ey.com/divest.