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. This is a marked change from the past two years, when nearly 50% of divestments were driven by a need for a quick cash injection rather than a longer-term strategic objective.

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 benefit for the business.

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.

“In the past few years many companies have looked to divestments to off-set cash and credit difficulties and to drive shareholder value as the sum of the parts are greater than the whole,” says Paul Hammes, Ernst & Young LLP’s Americas Leader for Divestiture Advisory Services. “This short-term thinking is shifting however as companies plan for the long-term and take a more strategic approach to divestitures.”

“Companies that divest strategically tend to exceed their value goals. According to the survey, 73% of companies that divest leave money on the buyer’s table further highlighting the benefits of a more strategic approach.  In this prolonged period of low – or even zero – growth, divestments will likely play a more important role in how companies navigate uncertainty, meet their strategic corporate objectives and create value for their stakeholders.”

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.