'Price isn't right' as businesses sell off assets

Businesses are struggling to generate the returns expected from asset sell-offs, according to a new report.

However, three quarters of UK executives expect decisions on divestments to be accelerated as a result of the continued effects of the pandemic and geopolitical uncertainties.

EY’s 2021 corporate divestment study said the “challenging, fast-paced business environment” was seeing asset disposals failing to meet targets.

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Most UK respondents (70 per cent) to the annual survey also expressed dissatisfaction with their portfolio review processes and believe they hold on to assets too long.

EY's Charles Honnywill says a 'potent mix of factors' is forcing companies to look at disposing assets. Picture: contributed.

However, the percentage of companies planning to make divestments in the next two years has fallen to 54 per cent compared with 81 per cent before Covid-19.

Charles Honnywill, leader of EY’s divestment team in the UK, said: “The need to redeploy capital is stronger than ever and is driven by a potent mix of factors – not least the pandemic, market volatility and geopolitical uncertainties.”

He added that although divestments should be carried out with a clear vision for the assets being sold, “too often this is not the case and portfolios can become compromised or divestments fail to deliver on time or to value”.

The survey results indicate an over-emphasis on the entity for sale with two thirds of respondents regretting that their divestment process did not extend to ensuring the remaining business achieved a post-disposal boost.

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“The challenge is to run a divestment that delivers both a great deal and a good outcome,” said Mr Honnywill.

The survey results also showed a shift in the trigger for a divestment process with more than half of UK respondents saying an unsolicited approach led to their last sale.

Environmental, social and governance (ESG) factors are also playing an increasing role in divestments. Nearly half (46 per cent) of sellers said ESG issues directly influence their planning. The survey also found that nearly all UK company respondents (90 per cent) said that changes to the technology landscape are directly influencing the decision to sell and how a divestment is prepared and executed.

"The technological angles in divestments are more important than ever before,” Mr Honnywill also stated.

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