Study: 70 percent of companies expect partial business sale in the next 12 months

Aurel Dragan 04/03/2019 | 11:55

Selling businesses seems to be one of the top choices of this period according to EY’s Global Corporate Divestment 2019 study. 84 percent of companies are planning partial business sales by 2021, up from 43 percent two years ago, while 81 percent say optimizing operational models will have a noticeable impact on sales plans over the next 12 months and 70 percent expect sales of high impact assets on the business, rising from 50 percent in 2018.

Companies are planning partial sales to gain competitive advantage, especially in the face of technology changes, customer preferences and shareholder pressure. The annual survey of 900 world-leading companies shows that the sales environment will remain, with 84 percent of companies planning this over the next two years. 81 percent of the surveyed companies said optimizing their operational model will influence asset release plans this year, highlighting the growing trend among companies to be more flexible in front of new competitors and existing ones.

 “Companies need to strike a balance between the need to react to change quickly and the need to allocate the necessary time to prepare for the disposal of assets to facilitate better performance in the long run. This is a significant change over two years ago, when partial sales were not considered to be as wide a strategic factor as today. Many companies are reacting fairly to new customer demands and growing competition from emerging technologies and cross-sector rivals,” said Paul Hammes, EY coordinator for asset divestment consulting services.

“At the local level, the Romanian market is mainly influenced by the sales or exit plans of multinational groups (such as the partial sale of Liberty Global operations in Germany, the Czech Republic, Hungary and Romania to Vodafone). Also noteworthy is the recent trend of relocating factories to external producers to cheaper labor destinations that could be expected in industries such as clothing as a result of successive increases in the minimum wage in recent years. For local companies or groups, one cannot speak of a notable trend of partial sales, as opposed to investment funds in Romania, for which the sale of assets is naturally achieved at the maturity of the asset’s holding. Companies with Romanian capital continue to develop and diversify local or regional expansion, especially in the neighboring countries. In contrast, a notable sale, which marks the biggest deal in agriculture, is the sale of Agricost to the Al Dahra group, with similar agricultural deals expected in the coming years. Large local groups with different activities are expected to start a portfolio analysis process and decide on partial business sales that do not align with the group’s future interests,” says Liliana Busoiu, associate partner, Assistance in Transactions, EY Romania.

According to the study, partial sales are more proactive initiatives with a strong impact than reactive responses to change. Over the next 12 months, 70 percent of surveyed companies estimate partial sales that can bring profound changes in their organizations, compared to 50 percent in 2018. The share of companies claiming the weak competitive advantage of a business unit as the reason for the latest asset cessation a reactive decision) recorded a significant decrease from 85 to 69 percent.

Geopolitical uncertainties are accepted as an unpredictable decision maker

The number of companies stating that macroeconomic and geopolitical factors will influence their asset disposal decisions declined to 51 percent from 62 percent in 2018. They may have acclimated to global uncertainties: 74 percent of companies still expect geopolitical changes to increase operational costs, and 69 percent wonder whether existing cross-border trade agreements will remain unchanged.

Technology clears boundaries between sectors and boosts partial business sales

Sector convergence is more likely to play a role in asset disposal decisions for 70 percent of the company’s leaders. They can no longer rely on the old rules of the game in order to maintain their competitiveness. Thus, 80 percent of companies expect the number of technology-generated sales to grow over the next 12 months, compared with 66 percent last year.

Sales also target private equity buyers

According to the study, it is more important than ever that at the time of sale companies have a robust asset-based argumentation, prepared ahead, to answer the questions of a wider range of buyers. A little over two-thirds of sellers (67 percent) said the price difference between buyers and sellers is more than 20 percent, while last year only a quarter of sellers reported such a difference. Defining an operational model is extremely important for private equity buyers who have sufficient investment resources but not operational synergies. Therefore, it is important to convey confidence that the ceded asset was fully prepared for the separation.

A quarter of private equity firms said a well-designed presentation of the asset as a stand-alone entity and a related cost model are essential to remain in the sales process. Half of them said access to detailed data was a key factor in their decision to remain in a bidding process. Details are important, but so is accuracy: 39 percent of private-equity bidders said that if the target entity does not achieve the expected results, they reduce the price or give up the transaction.

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Aurel Dragan | 29/11/2022 | 10:17

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