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Ernst & Young: Strategic Divestment Activity Expected to Increase

By Rob Starr, Content Manager, Big4.com

According to a new survey from Ernst & Young, companies are increasingly refocusing on divestitures with more than three-quarters of respondents saying that they intend to accelerate their divestment strategy over the next two years.

Six out of ten respondents say the main factor that determines whether a business stays within a company portfolio or not is 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.

Fewer than 50% of businesses say that they are carrying out all of the key steps required to enhance the value story of their divestments. Forty-six percent of global corporations are in the process of or are planning to divest in the next two years. However, more than half of those selling assets are not presenting their divestments as attractively as they could to the broadest range of potential buyers.

More than half of respondents said they would ramp up their divestment activities if economic growth improved, but there are differences between regions: 65% of respondents from Asia-Pacific say that they would increase their divestment activity but are holding back due to economic conditions, compared with 60% from the Americas and 51% from the EMEA region.

 

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