Ernst & Young: Longer term strategic priorities lose out to fast cash

The 2012 Global Corporate Divestment Survey reveals that respondents’ rationale for a divestment is often focused on short-term financial motives rather than the longer term strategic priorities benefit of the business,  according to a new report from Ernst & Young.

Six out of ten respondents say the main factor that determines whether a business stays within a company portfolio or not are short-term financial measures. For example, whether an asset dilutes or enhances earnings per share (EPS), and how it performs against financial benchmarks such as return on capital employed (ROCE). Strategic drivers such as enhancing shareholder value or focusing on core business, come further down the priority list.

The survey, conducted by the Economist Intelligence Unit (EIU), is based on feedback from 600 senior corporate executives globally, as well as a series of interviews with clients, investment banks and law firms.

Pip McCrostie, Global Vice Chair Transaction Advisory Services, at Ernst & Young comments:

“The rationale for making divestments is shifting. Many companies are still using divestments as a short-term tool to raise cash or pay down debt. That’s not surprising given the difficulties many businesses have faced in terms of cash and credit over the past five years.

“However, some companies are now taking a more strategic and structured approach, viewing a divestment as strategically important as an acquisition.