EY survey: corporate divestments to rise in next two years

Technological change and immigration policies are among the top drivers for divestment decisions worldwide, according to EY’s 2018 Global Corporate Divestment Study. 

Overall appetite for corporate divestments has more than doubled since 2017, the report found. In 2017, EY reported that only 43% of corporate executives expected to initiate divestments within the next two years. However, this year’s study found that nearly 87% of executives expect to divest before 2020. Digital innovation  is among the top reasons for this shift in divestment behaviour.

According to the study, which canvassed opinions from 1000 business leaders worldwide, 74% of corporate executives cited digital innovation, including the emergence of cloud computing and 3D printing, as having a direct impact upon their most recent divestment decisions.

In 2017, only 55% of executives surveyed identified technological change as a contributing factor in their divestment decisions.

“Urgency has arisen among these executives who see technology altering the competitive [marketplace] and recognising their organisation needs to adapt quickly,” explained Paul Hammes, EY’s global divestiture advisory services leader.

Besides technological change, companies are also initiating divestment plans to gain a perceived competitive advantage. Globally, 85% of companies surveyed in the report identified “a business unit’s relative weakness in its competitive position [within] its respective marketplace” as a trigger for their most recent major divestment.

Companies are eager to distribute the earnings of their divestments to improve other parts of their businesses.

Nearly half of the companies surveyed intend to utilise the proceeds from their most recent divestment to fund technological change, said the report. With regard to these tech-driven investments, a majority of companies surveyed sought to improve their operating efficiencies (82%) and address changing consumer needs (80%).

Meanwhile, 62% of companies identified geopolitical tensions as a trigger for their investment decisions. In particular, 86% of worldwide companies are concerned that future labour or immigration laws could have a significant effect on their future divestment plans.

Another significant geopolitical factor is tax policy, which “can make divestment plans less viable or, alternatively, offer new opportunities to improve value” said the report. In total, 80% of companies worldwide considered tax policy changes, such as recent US tax reform, as a driver behind their divestment decisions.

“Certain changes to corporate tax profiles as a result of new policy will spark incentives for making divestments,” said Mr Hammes. “The recently passed reduction in US corporate rates may offer domestic corporate sellers the opportunity to increase after-tax cash proceeds.”