Only 41% of companies approach divestments strategically: EY

Global report shows divestments take on greater strategic importance across sectors.

TORONTO — Only 41% of executives say a strategic portfolio review drove their last divestment decision, despite 80% of companies that did portfolio reviews who experienced a higher valuation multiple in the remaining business, according to EY’s 2014 Global Corporate Divestment Study.

“Companies are beginning to better understand the long-term value and growth that strategic selling can create – it’s no longer about short-term gain,” says Doug Jenkinson, Partner in EY’s Transaction Advisory Services practice.

Global advisory firm EY noted the following sectors where selling will be a big focus this year:

• Consumer products. Fifty-eight per cent of respondents say divestment is driven by off-trend product, and 44% who identified reduced demand or market share.

• Life sciences. It’s expected to be the most active sector, with 41% planning to divest in the next two years. Fifty-seven per cent identified regulatory change as the main reason for selling.

• Oil and gas. Sixty-three per cent note divestments over the last two years, primarily as a result of technologies such as horizontal drilling and hydraulic fracturing.

• Power and utilities. Low growth is cited by 49% as the main reason for divestment, while 57% say they would reinvest in fast-growth areas, such as alternative energy.

• Technology. Fifty per cent of executives identify big data and analytics developments, followed by cloud computing innovations and mobile devices as the key reasons for divestment.

Click here for EY’s 2014 Global Corporate Divestment Study.