7 in 10 Asian firms plan to divest portfolio enterprise

Evaluation of recent sales

A new EY survey of 300+ C-suite executives in the Asia-Pacific region found major divestitures to be made this year – to make room for investment in sustainability, technology and supply chain reorganization.

From January to March 2021, EY surveyed more than 1,000 top executives in key markets in America, Europe and APAC – to take a look behind the scenes of their investment strategies this year. The core message: companies are reducing take-home and preparing for the new normal.

Nearly 80% of global executives say they have held onto assets for too long, and a similar proportion globally plan to dispose of portfolio companies. “The past year has shown how quickly customer needs and technology requirements can change,” said Rich Mills, EY’s global leader in “Sell and Separation”, explaining the context.

“Companies that have long been viewed as critical to a portfolio may now be consuming unnecessarily limited resources and deploying capital that should be deployed elsewhere.” Over 300 of the executives surveyed are based in APAC, where the appetite for the long term reinventing seems strongest.

Almost three-quarters of companies in the region plan to divest part of their business in the next two years – roughly in line with the global value. A clear long-term mindset: Despite subpar ratings for their pandemic divestments, most APAC companies are happy with the move given the overall business impact.

In fact, most disposals are typically costly, unprofitable portions of the portfolio, and the sale itself adds business value. “Selling non-core businesses can provide both the capital to fund investments and operational streamlining to reduce risk and build resilience, which will facilitate long-term recovery,” said Paul Murphy, EY Asia-Pacific Sell and Separate Leader .

Top divestment strategies with global executives

Executives in APAC have recognized this inherent value, while their global counterparts are less inclined to see the positives of low-value divestments. And APAC companies are also unique in terms of their long-term priorities.

Around 80% of all executives surveyed by EY worldwide plan to invest the money from the divestments in new technologies. The digital transformation from back-end to customer-centric functions has become vital in a remote economy and is likely to be the focus in the years to come.

This is true for many in APAC as well: nearly 75% of executives in the region plan to invest in technology from raised funds, while nearly 90% see a strong impact of technology on their overall divestment plans. Years of investment in advanced technology are now being pushed across the border by unprecedented economic changes.

ESG and supply chain

Technology isn’t the only core priority for APAC companies, however. An impressive 84% of APAC executives surveyed said environmental, social and governance (ESG) factors play a direct role in exit strategies – miles ahead of Europe at 47% and America at a meager 14%.

Global companies are struggling to generate ESG profits from disposal funds

Most don’t know how to excel in this area: almost 60% of executives worldwide don’t use divestment funds to improve their ESG profile. Existing structures are designed to use new liquidity to increase profitability and share price rather than building a purpose-driven business.

Another top priority worldwide is the reorganization of the supply chain – after the pandemic has uncovered countless risk points in cross-border companies. At the same time, APAC is the center of global supply chain hubs and prospects – which is of little concern to regional executives.

Around 30% plan to use divestment funds to optimize supply chains – compared to over 60% globally. Other upcoming challenges, such as regulatory changes, play a bigger role in divestment plans. In short, companies in APAC are aware of global undercurrents but are pursuing their own course towards post-pandemic resilience.

“Asian companies are confident but prudent,” noted Murphy. “Most companies have experienced disruptions – either as a supplier or as a customer, so they diversify away from being overly dependent on individual counterparties or markets. In every meeting room this year, the laser focus is on building resilience. “