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    Strategic Divestment

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    Sophie Park
    According to a survey by Ernst & Young, over three-quarters of companies plan to accelerate their divestment strategies in the next two years due to the slow economic recovery. While divestments in the past two years were often driven by the need for quick cash, companies are now taking a more strategic approach focused on long-term value. However, the survey found that over half of companies selling assets are not maximizing value by fully developing the growth story and considering all potential buyers. To be most successful, companies need to engage in rigorous portfolio management, develop a compelling value story, and consider a wide range of potential strategic and financial buyers globally.

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    Strategic Divestment

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    Sophie Park
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    According to a survey by Ernst & Young, over three-quarters of companies plan to accelerate their divestment strategies in the next two years due to the slow economic recovery. While divestments in the past two years were often driven by the need for quick cash, companies are now taking a more strategic approach focused on long-term value. However, the survey found that over half of companies selling assets are not maximizing value by fully developing the growth story and considering all potential buyers. To be most successful, companies need to engage in rigorous portfolio management, develop a compelling value story, and consider a wide range of potential strategic and financial buyers globally.

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    According to a survey by Ernst & Young, over three-quarters of companies plan to accelerate their divestment strategies in the next two years due to the slow economic recovery. While divestments in the past two years were often driven by the need for quick cash, companies are now taking a more strategic approach focused on long-term value. However, the survey found that over half of companies selling assets are not maximizing value by fully developing the growth story and considering all potential buyers. To be most successful, companies need to engage in rigorous portfolio management, develop a compelling value story, and consider a wide range of potential strategic and financial buyers globally.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    40 views3 pages

    Strategic Divestment

    Uploaded by

    Sophie Park
    According to a survey by Ernst & Young, over three-quarters of companies plan to accelerate their divestment strategies in the next two years due to the slow economic recovery. While divestments in the past two years were often driven by the need for quick cash, companies are now taking a more strategic approach focused on long-term value. However, the survey found that over half of companies selling assets are not maximizing value by fully developing the growth story and considering all potential buyers. To be most successful, companies need to engage in rigorous portfolio management, develop a compelling value story, and consider a wide range of potential strategic and financial buyers globally.

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    Attribution Non-Commercial (BY-NC)
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    of 3

    2/2/13

    Strategic Divestment Activity Expected to Increase in Next Two Years Due to Slow Economic Recovery - Ernst & Young - United States

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    Home >Newsroom >Newsreleases >StrategicDivestmentActivityExpectedtoIncreaseinNextTwoYearsDuetoSlowEconomicRecovery

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    JenniferCompton Ernst&YoungLLP 9179037506 HannahJames FleishmanHillard 2124532104 Maximizingdivestment success

    StrategicDivestmentActivityExpectedtoIncreaseinNextTwo YearsDuetoSlowEconomicRecovery
    77%ofcompaniestoacceleratedivestmentplans46%plantodivestwithintwo years Inthelasttwoyears,shortterm"fastcashwasapriorityforsellers 73%ofcompaniesthatdivestleavemoneyonthebuyerstable NewYork,16January2013AccordingtoanewsurveyfromErnst&Young,companiesare increasinglyrefocusingondivestitureswithmorethanthreequartersofrespondentssayingthatthey intendtoacceleratetheirdivestmentstrategyoverthenexttwoyears.Thisisamarkedchangefromthe pasttwoyears,whennearly50%ofdivestmentsweredrivenbyaneedforaquickcashinjectionrather thanalongertermstrategicobjective. The2012GlobalCorporateDivestmentSurveyrevealsthatrespondentsrationaleforadivestmentis oftenfocusedonshorttermfinancialmotivesratherthanthelongertermstrategicbenefitforthe business. Sixoutoftenrespondentssaythemainfactorthatdetermineswhetherabusinessstayswithina companyportfolioornotisshorttermfinancialmeasures,forexample,whetheranassetdilutesor enhancesearningspershare(EPS),andhowitperformsagainstfinancialbenchmarkssuchasreturn oncapitalemployed(ROCE).Strategicdriverssuchasenhancingshareholdervalueorfocusingon corebusiness,comefurtherdowntheprioritylist. Thesurvey,conductedbytheEconomistIntelligenceUnit(EIU),isbasedonfeedbackfrom600senior corporateexecutivesglobally,aswellasaseriesofinterviewswithclients,investmentbanksandlaw firms. Inthepastfewyearsmanycompanieshavelookedtodivestmentstooffsetcashandcreditdifficulties andtodriveshareholdervalueasthesumofthepartsaregreaterthanthewhole,saysPaulHammes, Ernst&YoungLLPsAmericasLeaderforDivestitureAdvisoryServices.Thisshorttermthinkingis shiftinghoweverascompaniesplanforthelongtermandtakeamorestrategicapproachto divestitures. Companiesthatdiveststrategicallytendtoexceedtheirvaluegoals.Accordingtothesurvey,73%of companiesthatdivestleavemoneyonthebuyerstablefurtherhighlightingthebenefitsofamore strategicapproach.Inthisprolongedperiodofloworevenzerogrowth,divestmentswilllikelyplaya moreimportantroleinhowcompaniesnavigateuncertainty,meettheirstrategiccorporateobjectives andcreatevaluefortheirstakeholders. Arebusinessestellingthefullvaluestory? Fewerthan50%ofbusinessessaythattheyarecarryingoutallofthekeystepsrequiredtoenhance thevaluestoryoftheirdivestments.Fortysixpercentofglobalcorporationsareintheprocessoforare planningtodivestinthenexttwoyears.However,morethanhalfofthosesellingassetsarenot presentingtheirdivestmentsasattractivelyastheycouldtothebroadestrangeofpotentialbuyers.Asa resulttheyarenotmaximizingthevalueoftheirdivestments.

    Ourstudyof567global executivesrevealsfiveleading practicesthatcanhelp companiesavoidleavingvalue onthetable.Learnmore . Humancapitalcarveout study:strategiesforsuccess

    Inourlateststudy,wehighlight trendsandleadingpractices thatcanhelpcompaniesuse divestmentstoraise,optimize andpreservecapital.Learn more.

    www.ey.com/US/en/Newsroom/News-releases/News_Strategic-Divestment-Activity-Expected-to-Increase-in-Next-Two-Years

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    2/2/13

    Strategic Divestment Activity Expected to Increase in Next Two Years Due to Slow Economic Recovery - Ernst & Young - United States

    Essentialstepssuchasvalidatingthemarket/product/growthstorywithindependentreview(50% respondents),developinganM&Aplanforpotentialinvestors(45%)andprovidingtheirownviewof synergyopportunitiesintheinformationprovidedtobuyers(43%)arebeingcarriedoutbyaminorityof thosebusinessesdivesting. Intodaysmarketbuyersaresavvierthanever,socorporatesellersneedtoviewthemselvesasthe buyerwouldinordertopresentthemostcompellingcaseforthedeal.Itiscrucialthatsellersenhance thevaluestoryoftheirdivestmentsandtailorthemtothefullrangeofpotentialacquirers,continues Hammes. Morethanhalfofrespondentssaidtheywouldrampuptheirdivestmentactivitiesifeconomicgrowth improved,buttherearedifferencesbetweenregions:65%ofrespondentsfromAsiaPacificsaythat theywouldincreasetheirdivestmentactivitybutareholdingbackduetoeconomicconditions,compared with60%fromtheAmericasand51%fromtheEMEAregion. Overall,manycompanieshavechosentoprioritizeoperationalimprovements,cuttingcostsand increasingefficiencyoverpursuingdivestmentsinrecentyears,waitingfortheeconomytorecover. However,theregionaldisparitiesmayindicatethatWesterndevelopedmarketcompanieshavebecome betteraccustomedtomacroeconomicgrowthchallengeshavingmanageduncertaintyforlonger andarenowmorewillingtodivestdespitetheeconomicenvironment. Manycompanieshavebeentakingawaitandseeapproachtodealmakinginthelastfewyearsas economicuncertaintypersists,andthisapproachmaybehereforawhileasaprolongedweak economicoutlookcontinues.However,accordingtoourresearch,manycompaniesmaybemissingout ongrowthandvalueopportunitiesbypostponingdivestmentplans,saysHammes. Supportingthisview,40%ofcompaniessaidahighdegreeofcompetitionintheM&Aprocesshelped driveupvalues. Rigorousportfoliomanagementandabroaderbuyerbasemaximizesuccess Whenaskedabouttheirmostrecentdivestments,onlyafifthofcompaniesoverallexceededtheir expectations.Respondentswithstructuredprocessesweremorelikelytohaveachievedstrategic goals:55%divestedaheadoftimeandexceededpriceexpectations.Ofthosedivestingwithout structuredprocesses,only34%metthoseexpectations. Sellersarealsonotalwaysconsideringthefullrangeofpotentialacquirersfortheirassets.Onlyathird ofpotentialsellersconsideroverseasbuyersinthesamesectorwhilejustafifthlooktodomestic buyersinadifferentsector.Only13%consideranoverseasbuyerinadifferentsectortobethemost likelyacquirer. Corporatesellerscouldalsobenefitbylookingbeyondcorporatebuyersforinstance,only3% considerprivateequityalikelyacquirer. Companieslookingtodivestmayincreasevaluebyappealingtobuyersinarangeofsectorsand marketsaroundworld,includingprivateequity,saysHammes. Employeeengagementensureslongtermdivestmentviability Themostsuccessfuldivestituresarethosethatfocusonemployeeengagementandretention, accordingtoErnst&YoungsHumanCapitalCarveoutStudy,whichsurveyedmorethan100 executivesexperiencedinglobalcorporatedivestiturestodeterminehowtheirhumancapitalinitiatives impacttheirdealsuccess.Thereportfoundthat85%ofsurveyrespondentssaythatemployee retentionisthebiggestdriverofcarveoutsuccess. Beforethedealissignedcorporatebuyersandsellersmustconsiderthelongtermvalueofthedeal fromapeopleperspectiveaswellandourresearchandexperiencehasfoundthatthosecompanies thatfocusonemployeecommunicationandretentionarethemostlikelytotranslatetolongtermvalue, continuesHammes. Thesoldstandard:goldenrulesforanysale TheGlobalCorporateDivestmentSurveyhighlightsprinciplesandpracticesthatwillhelpensurea successfuldivestment. Hammesconcludes:Thosecompaniesthatfocusonconsistentandstrategicpracticesincluding: wideningthenet,standinginthebuyersshoesandhavingalongtermvalueperspectivewillbemost likelytoachievedivestmentsuccess. NotestoEditors Ernst&Youngs2012GlobalCorporateDivestmentStudyrevealsfiveleadingpracticesthatsellers shouldfocusontomaximizedivestmentsuccess: Conductstructuredandregularportfoliomanagement:Therespondentsthathave structuredprocessesaremorelikelytohaveachievedstrategicgoals: Considerthefullrangeofpotentialbuyers:Appealingtoafullrangeofbuyers,including strategicandfinancial,domesticandoverseas,cancreatestronginterestforanassetand realizeapricethatexceedsexpectations. Articulateacompellingvalueandgrowthstoryforeachbuyer:Buyersaremore circumspectaboutthegrowthpotentialofbusinessesbeingofferedforsale.Fewsellers articulateastrongvalueandgrowthstoryfromtheperspectiveofthemostlikelybuyersof theirbusinesses.

    www.ey.com/US/en/Newsroom/News-releases/News_Strategic-Divestment-Activity-Expected-to-Increase-in-Next-Two-Years

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    Strategic Divestment Activity Expected to Increase in Next Two Years Due to Slow Economic Recovery - Ernst & Young - United States

    Preparerigorouslyforthedivestmentprocess:Selectchangestothepreparation processcouldhavemadeamaterialdifferencetovalue.Examplesincludeprotocolsfor informationsharingandconfidentiality,engagementwithtargetmanagementandinvestment byseniorteammembers. Understandtheimportanceofseparationplanning:Aclearseparationroadmapis identifiedbymorethanhalfofrespondentsasthemostincreasinglycomplexaspectof divestment.Otherchallengingareasincludenegotiatingtransitionservicesagreements (TSAs),estimatingstandalonecosts,taxplanninganddecisionsregardingthecompletion mechanism.Buyersthatdonotfullyunderstandthesefactorsperceivegreaterrisk,whichis oftenreflectedintheirofferingprice. AboutErnst&Young Ernst&Youngisagloballeaderinassurance,tax,transactionandadvisoryservices.Worldwide,our 167,000peopleareunitedbyoursharedvaluesandanunwaveringcommitmenttoquality.Wemakea differencebyhelpingourpeople,ourclientsandourwidercommunitiesachievetheirpotential. Ernst&YoungreferstotheglobalorganizationofmemberfirmsofErnst&YoungGlobalLimited,eachof whichisaseparatelegalentity.Ernst&YoungGlobalLimited,aUKcompanylimitedbyguarantee,does notprovideservicestoclients.Formoreinformationaboutourorganization,pleasevisitwww.ey.com. ThisnewsreleasehasbeenissuedbyEYGMLimited,amemberoftheglobalErnst&Young organizationthatalsodoesnotprovideanyservicestoclients. ###

    www.ey.com/US/en/Newsroom/News-releases/News_Strategic-Divestment-Activity-Expected-to-Increase-in-Next-Two-Years

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