Shareholders’ demands will continue to be a major divestment driver this year, according to a new survey by EY.
The survey titled “Global Corporate Divestment Study, Closing the deal: strategies to increase speed and value” indicates that divestments will be a core component of companies’ capital strategy next year as management teams address pressure to improve portfolio performance and shareholder returns.
Forty-five percent of participants in the survey indicate that investor activism influenced their most recent decision to divest.
Paul Hammes, global divestiture advisory services leader, EY, says: “Shareholder activists are bolder than they have ever been, and they leave no stone unturned in their hunt for untapped value.”
Though, he notes, that divestments will continue to be fuelled not only by activists’ demands, “but as a result of management teams’ preemptive portfolio reviews and ongoing portfolio fine-tuning.”
Hammes says: “Without diligent, frequent portfolio reviews that involve concrete data and advanced analytics, companies make themselves vulnerable to shareholder activists. More importantly, executives wind up leaving money on the table if they do not prepare for a sale properly and deliberately.”
For many companies, divestments are a key path to achieving growth, and 74 percent of respondents used funds from their most recent divestment for growth.
Specifically, 34 percent reinvested the funds back into the core business; 23 percent invested in new products, markets, or geographies, and 17 percent made an acquisition. The financial benefits of divestments are undeniable, considering 66 percent of companies saw an increased valuation multiple in the remaining business after their last asset sale.
