Brazil7 in 10 Asian companies plan to divest portfolio business
A new EY survey among over 300 C-suite executives across Asia Pacific revealed that heavy divestment is on the cards this year – to make room for investments in sustainability, technology and supply-chain reorganisation.
In January through March 2021, EY surveyed more than 1,000 top bosses across key markets in the Americas, Europe and APAC – for a peak behind the curtain into their investment strategies this year. The core finding: businesses are shedding deadweight and prepping for the new normal.
Nearly 80% of global executives say they hold on to assets too long, and a similar share globally are planning to divest portfolio businesses. “The past year has underscored how quickly customer needs and technology requirements can change,” explained EY Global ‘sell and separate’ leader Rich Mills, setting the context.
“Businesses that may long have been deemed critical to a portfolio could now unnecessarily be taking up limited resources and utilising capital that should be deployed elsewhere.” Over 300 of the surveyed executives are based in APAC, where the appetite to reinvent for the long term appears to be strongest.
Nearly three-quarters of businesses in the region plan to divest part of their business in the next two years – roughly consistent with the global figure. A clear long-term mindset: despite facing sub-par valuations for their divestments through the pandemic, most APAC businesses are happy with the move in light of its overall business impact.
Indeed, most divestments tend to be high-expenditure, low-profitability parts of the portfolio, and the act of selling in itself adds business value. “Selling off non-core businesses can provide both the capital to fund investment and the operational streamlining to reduce risk and build resilience, facilitating long-term recovery,” explained Paul Murphy, EY Asia-Pacific Sell and Separate Leader.
APAC executives have realised this inherent value, while their global counterparts are less inclined to see the bright side of low value divestments. And APAC businesses are unique in their long term priorities too.
Around 80% of all global executives surveyed by EY plan to invest the money raised from divestments in new technology. Digital transformation from the back-end to customer-facing functions has become crucial for survival in a remote economy, and will likely occupy centre stage for years to come.
This holds true for many in APAC as well: Nearly 75% of the region’s executives are planning tech investments from funds raised, while nearly 90% note a heavy influence of technology on their overall divestment plans. Years of investment in advanced tech are now being pushed over the line by unprecedented economic changes.
ESG and supply chain
That said, technology is not the only core priority for APAC businesses. An impressive 84% of surveyed APAC executives noted that environmental, social and governance (ESG) factors are playing a direct role in divestment strategies – miles ahead of Europe with 47% and the Americas with a meagre 14%.
Most are unaware of how to excel in this field: nearly 60% of executives worldwide fail to use divestment funds to enhance their ESG profile. Existing structures are geared towards using new liquidity to boost profitability and share price, rather than building a purpose-driven business.
Another top priority globally is supply chain reorganization – following the pandemic’s exposure of myriad risk points in cross-border businesses. At the same time, APAC is the centre of global supply chain hubs and prospects – giving regional executives little to worry about.
Around 30% plan to use divestment funds to tweak supply chains – compared to over 60% around the world. Other up and coming challenges such as regulatory shifts play a bigger role in divestment plans. In short, businesses in APAC are aware of global undercurrents, but are charting their own course to post-pandemic resilience.
“Asian companies are confident but prudent,” noted Murphy. “Most companies experienced disruption – either as a supplier or customer, so they are diversifying away from overreliance on any single counterparty or market. Every boardroom is laser-focused on building resilience this year.”
