Traditionally, the perception of a divestiture (selling company assets) has been negative, but an EY poll shows executives see divestment as a positive step to help grow their companies.
Seventy-four percent of respondents used funds from their most recent divestment for growth; 34% invested the funds back into the core business; 23% invested in new products, markets, or geographies; and 17% made an acquisition.
The financial benefits of divestments proved undeniable: 66% of companies saw an increased valuation multiple in the remaining business after their last asset sale.
“Letting go in order to grow is a trend among companies worldwide, and we’re seeing similar activity in Canada,” says Doug Jenkinson, a partner in EY’s Transaction Advisory Services practice. “Capital markets are rewarding companies for not being afraid to focus on their core business and becoming true experts in their field.”
According to the survey, 46% of executives initiated their most recent divestment because the assets weren’t part of their core business.
The study also found that executives worldwide are expecting divestment activity to pick up in the coming year. More than half of survey respondents (54%) expect the number of strategic sellers to increase in the next year. In addition, 47% of companies say that even if they weren’t looking to divest, they would be willing to sell at a premium in the range of 10% to 20%. Buyers are also on the hunt: nearly half (42%) of companies expect the number of unsolicited approaches to increase in the next year.
“Divestment is no longer about failure, it’s about redeploying capital and focusing on growth where growth is available,” adds Jenkinson. “Successful companies will review their portfolio regularly and look for opportunities for strategic divestment.”