Last year, when EY asked corporate executives in Asia who had previously sold an asset whether they were planning to divest again, only 15% said they would do so within the next two years. In this year’ study, the proportion of companies that would sell has surged to 47%.
“There’s no doubt we are seeing an increasing propensity to divest in this region,” says Stephen Lomas, who is Partner for Transaction Support – Oceania, and Divestment Advisory Services Leader, Asia Pacific, at Ernst & Young.
Why? It’s not because businesses in the region are in trouble. “Companies are getting much more strategic,” says Lomas. “People are realizing it doesn’t necessarily make sense to own a coal mine and an airline and a shipping company.”
“Between 2008 and 2010, a lot of divestment activity was driven by the fact that companies have got into financial difficulty. But what we’re now seeing is divestment as a form of capital-raising”
He spoke to CFO Innovation’s Cesar Bacani about the strengthening divestment trend, the rise of shareholder activism, best-practice divestment strategies and other issues. Edited excerpts:
In this year’s EY global survey, was there a difference in the responses of the corporate executives from Asia compared with the global sample?
The interesting thing is that 47% of those who had done divestment in the last three years expect to make a divestment within two years. The global number was 49%, so [Asia Pacific] was only a little bit below the global.
And that [47%] is a significant increase on the study we had undertaken in 2015, where only 15% of those surveyed [in Asia] thought that they’d make a divestment in the next two years. There’s no doubt we are seeing an increasing propensity to divest in this region.
Why? Are these Asian companies in trouble?
If you go back five or seven years, most companies that were divesting were divesting because they were in trouble, in the sense that they were over-geared, their balance sheets had too much debt. Between 2008 and 2010, a lot of divestment activity was driven by the fact that companies have got into financial difficulty.
But what we’re now seeing is divestment as a form of capital-raising. Companies are getting much more strategic. So rather than go to shareholders for more money or going to the bank to try and raise more capital, you divest part of your business that no longer fits your core to reinvest that money in new products, new markets, in building out the core.
There are far fewer conglomerates in the United States now than there were 20 or 30 years ago. We’re very slowly seeing similar things happening in this region, where people are realizing it doesn’t necessarily make sense to own a coal mine and an airline and a shipping company.
Most of the divestment cases seem to do with Australian organizations selling to Chinese companies.
We’ve seen in Australia, or in Oceania, to include New Zealand, a trend for divestment for a number of years.
The larger end of the divestment activity we’ve seen in Australia in the last few years has been government divesting, either at the federal level or at the state level, the assets that they own in order to recycle their capital back to social infrastructure, such as hospitals and schools and roads.
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