Latest News  

EY: European companies are divesting to future-proof growth

According to the EY Global Corporate Divestment Study, 84 per cent of European companies surveyed intending to divest within the next two years (the majority planning to do so in the coming 12 months), executives are streamlining operating models for better agility.

2019-03-07 20:22:46

Executives are embracing divestment to strengthen their competitive edge and execute on their transformation agenda.

While geopolitical uncertainty dominates the headlines – from tariffs to trade wars, Brexit to border control – European companies are embracing divestment to strengthen their competitive edge and execute on their transformation agenda. Divesting non-core businesses is seen as a priority to secure a more nimble operating model that enables execution on their capital agendas.

According to the EY Global Corporate Divestment Study, 84 per cent of European companies surveyed intending to divest within the next two years (the majority planning to do so in the coming 12 months), executives are streamlining operating models for better agility. Accelerating corporate strategies to adapt to technology-driven business models is helping companies reposition themselves for future growth opportunities.

Digital disruption is fast-forwarding the pace of transformation. Seventy-four percent of European executives say that changes to the technology landscape are directly influencing their divestment plans. Executives predict that the number of tech-driven divestments will rise by 81 per cent in the coming 12 months – 50 percentage points up from last year, with 4 out of 10 respondents aiming to fund new technology investments from a divestment.

Executives divest to future-proof growth

Companies are increasing their rigor around portfolio management and sharpening their focus on building a growth strategy around core profitable operations.

With this, more companies are divesting for strategic reasons as opposed to shortcomings or failures in a business: European companies that cite a unit's weak competitive advantage as a driver in their latest divestment fell to 68per cent, down from 87per cent the previous year.

The second highest-rated driver for divestment is streamlining the operating model (65per cent), giving companies the ability to execute more nimbly on their capital agendas. Part of this equation is reinvesting the funds from a divestment to effectively strengthen a company's competitive edge. Sixty-one percent of European executives are prioritizing investing sale funds in new products, markets or geographies, with 58per cent investing back in the core business.

79 of companies say streamlining the operating model will factor into their divestment plans over the next 12 months.

Building the foundation to divestment success
Businesses increasingly realize that there are crucial steps in achieving a successful sale. Preparation is paramount. Regular portfolio reviews and use of analytics tools provide clarity of vision around an asset's state of health and divestment readiness.

The following are essential activities to pave the way for a successful divestment:
• Weighing the merits of different deal structures to deliver optimum value. A carve-out is the preferred approach for the vast majority of European respondents (75per cent), up from 48per cent last year. With alternative structures, such as partial divestments or joint ventures in second place (20per cent), down from 46per cent. This decrease may reflect the governance challenges that businesses can face when they partner with another company, particularly a previous competitor.
• Understanding and managing work stream interdependencies. This proved to be one of the biggest challenges for six out of 10 of respondents in developing their deal perimeter with more focus needed on highly-entangled areas such as IT, shared legal entities and shared services.
• Pre-empting regulatory hurdles. Sellers must identify regulatory requirements in every jurisdiction to set clear work stream timelines. Non-tariff barriers to success, including regulation, product standards and ownership rules, is cited by 45per cent of respondents as affecting their divestment plans.
• Executives name a number of other pre-sale activities to help unlock maximum value from a divestment. These include identifying and mitigating stranded costs and highlighting tax upsides to potential buyers, completing operational improvements to reduce costs or improve margins and preparation to mitigate price reductions for tax risk.
• Maximizing value by minimizing fatal flaws
• The price gap between what buyers and sellers expect has widened significantly. Two-thirds (67 per cent) of respondents report a gap of more than 20 per cent between sellers' expectations and buyers' offers, up from 22 per cent of respondents last year. And more than one-third (37 per cent) say that their most recent divestment did not meet their price expectations, up from 14per cent.

The lack of alignment in expectations may explain why opportunistic offers were a trigger for just 49 per cent of divestments, down from 73 per cent last year. If sellers are to avoid joining the 57 per cent of respondents who admit to holding onto assets for too long, it is even more important to build a credible value story tailored to meet the needs and interests of all potential buyers.

To maximize value sellers should:
• Bring analytics into buyer negotiations. Although 79 per cent of respondents used analytics in making their investment decision, the number using analytics to stress test data from a buyer's perspective fell to 44 per cent from 70 per cent last year. Over half of respondents (54 per cent) who didn't use analytics in buyer negotiations admitted that they wished they had.
• Offer potential buyers the reassurance of stand-alone operating models. Forty-one percent of respondents recognized that their failure to capitalize and operationalize stand-alone entities delayed or deferred asset closing.
• Demonstrate flexibility in operating models, deal perimeters and sale structures. Fifty-seven percent of respondents say that a lack of flexibility in the sale structure eroded the value of their last divestment.

Conclusion: Bright future prospects

Despite the headwinds, just 38 per cent of European companies now cite geopolitical uncertainty and macroeconomic volatility as the prime divestment trigger, down from 52 per cent last year. Prospects for future deals remain bright, with prices well placed to rise again. A significant number of European respondents predict that the level of strategic sellers, unsolicited approaches, and buyers from outside their sector will increase over the next year. They also foresee a rising incidence of industry consolidation (80 per cent, up from 67 per cent last year) and large transformational deals (74 per cent, up from 50 per cent last year). To leverage these positive opportunities, sellers need to look through buyers' eyes and deliver what they want to know and see. Crucially, they should streamline their operating model for agility, prepare assets for sale before the opportunity arises, and tailor their value story for all potential buyers.


0 COMMENTS ^ Go back to Top
WRITE A COMMENT ^ Go back to Top
 
Your email address will not be published.
Nickname
Email
Comment
Validation Code
   
 
 
NEWS
Deloitte Romania opens application for the 20th edition of Technology Fast 50 Central Europe competition

Deloitte Romania opens application for the 20th edition of Technology Fast 50 Central Europe competition, the prestigious regional ranking for fast growing companies in the technology sector.

 Read Full article »
Zitec launches its 1 million Euro Mirro app

Zitec, specializing in the development of customized tech solutions, services and products, launched Mirro.io within Bucharest Tech Week 2019, a dedicated application for measuring the performance within the co

 Read Full article »
Analysis: Romania needs 1 million workers and 10,000 industrial robots

The Romanian economy has been facing for several years an acute crisis of workforce, the necessary of workers being evaluated at approximately 1 million people, but 10,000 industrial robots as well, shows an an

 Read Full article »
Adobe to add 100 more people in Romania to the already 600 staff professionals

Adobe Romania announced it touched the 600 employees' milestone in Romania and it is looking to expand its local team with 100 more professionals experienced in technical and software engineering.

 Read Full article »
Randstad Employer Branding 2019: Salary, benefits - most important criteria for 70% of Romanians when applying for job

The Chinese with Huawei and the Americans with IBM and Ford are the most wanted employers in Romania, and the most important criterion for Romanians in case of an employment decision is salary and extra-salary

 Read Full article »
Deloitte 2019 Global Human Capital Trend report for Romania: Leaders need to understand new technologies

The most important things for Romanian employers are lifelong learning, developing leaders and improving employee experience, according to Deloitte 2019 Global Human Capital Trend report for Romania.

 Read Full article »
Fortech expands its footprint with a new sales and consultancy hub in Chicago

Fortech – one of the largest Romanian-owned IT services companies, repeatedly recognized by Deloitte and EY – today announced the opening of its flagship sales and consultancy office in the U.S., in downtow

 Read Full article »
Digitization boosts the controlling market in Romania, estimated at 80 million Euro

Management consulting company Horváth & Partners estimates that believes that in the near future, the digitization of financial departments will become a necessity and it will be a decisive factor in streamlin

 Read Full article »
ABSL organizes its next Business Mixer at Brasov on May 22nd

Brașov Business Mixer is the first conference organized by ABSL, dedicated to the local business services community.

 Read Full article »
Oracle Academy numbers 650 students and 200 teachers participating within its projects in the past six months

In the past year, worldwide, Oracle Academy worked with more than 15,000 educational institutions across 128 countries, supporting more than 6.3 million students worldwide to prepare them for careers in our tec

 Read Full article »
 
 
 
MOST READ ARTICLES
» Digital Transformation Conference to t...
» ASE's HR Master – helping students i...
» Marian V. Popa: Meet the speakers at R...
» Meet the winners of ROMANIAN BUSINESS ...
» Capgemini to open new office at Suceav...
» Romulus Caralicea: Meet the speakers a...
» Randstad Employer Branding 2019: Salar...
» Zitec launches its 1 million Euro Mirr...
» Deloitte Romania opens application for...
» Oracle Romania inaugurates the Iasi of...
 
EDITOR CHOICE
Digital Transformation Conference to take place on June 19 at Bucharest

The Diplomat – Bucharest organizes Digital Transformation Conference to be held on 14 of June in Bucharest, at Hilton Hotel - Regina Maria Hall, starting 8:30 AM.

 Read Full article »
L&D Conference by The Diplomat Bucharest to take place on June 4th at Bucharest

The Diplomat-Bucharest organizes the Third Edition of its Learning & Development CONFERENCE on 4 June, 2019 at InterContinental Hotel Bucharest starting 09:00 am.

 Read Full article »
Meet the winners of ROMANIAN BUSINESS SERVICES AWARDS, 2019 edition

ROMANIAN BUSINESS SERVICES FORUM & AWARDS 2019, in its fifth year, brrought on May 7, in Bucharest, a new concept event with engaging keynote sessions by industry leaders, interactive panel discussions, network

 Read Full article »
Few hours away from to the long awaited CEO Leaders Debate, a premiere of Romanian Business Services Forum and Awards

We are a few hours away to the long awaited CEO Leaders Debate, a premiere of Romanian Business Services Forum and Awards on May 7.

 Read Full article »
Colin C. Lovering: Meet the speakers at Romanian Business Services Forum & Awards 2019, on May 7

Colin C. Lovering has been living and working in Romania since 2009 when he arrived to offer consultancy and advice to organisations looking for growth and profitability and founded Achieve International.

 Read Full article »
Latest News  
 
about us | newsletter | contact | members area | GDPR policy
Copyright © 2015 by Diplomat Media Events Design by Diplomat Media Events