By Rob Starr, Content Manager, Big4.com
Slow growth and difficult debt markets are forcing companies to reassess their business portfolios, according to a new report by business advisory firm, Deloitte. Nearly half of the companies surveyed for the report, Is breaking up hard to do?, say they plan to divest three or more business in the next three years, with over 90% intending to divest at least one of its businesses.
Dan Beanland, partner in the corporate finance practice at Deloitte, said: “Whilst we expect the overall rate of divestment activity in the next three years to be broadly similar as the past three years, there are differences in the motivations for companies to sell. In the past, much of the activity has been fallout from the financial crisis with companies taking remedial action to shore up their finances. This will continue to some degree, but we expect to see a far greater proportion of activity in the coming years occurring due to companies taking a strategic decision over the future direction of their business.
“Our biggest concern from this survey is that over a third of companies only evaluate individual business when they are already underperforming. Companies that regularly review the performance of their individual business units are likely to generate higher prices when they come to sell. Corporates need to look more closely at the private equity model, where exit planning is incorporated into their business plan from the start.”
The report found that just 10% of divested assets have been purchased by domestic private equity houses, with a further 10% bought by cross-border private equity firms. In contrast 41% of businesses were divested to a domestic corporate, with 38% going to a cross-border corporate.