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Global Companies Start to Consider Selling

Date: 01/22/2014
Source: EY
More than half of global executives are open to selling their whole business

A third (33%) of global businesses are planning a sale in the next two years according to EY’s annual report Global Corporate Divestment Survey, which surveyed more than 700 corporate executives globally. The report reveals that 80% of global executives are open to offers for prized assets and a 30% premium would bring a majority of execs to the deal table.

In terms of options, 55% of global executives would consider a full sale of their business compared to 34% who would opt for a carve out and 14% an IPO.

Divestments are now a fundamental part of business strategy – selling is becoming as great a focus for many CEOs as buying.
The pace of innovation, changing purchasing patterns and the return of modest growth to the global economy – means business leaders will need to more regularly re-assess their portfolios and strategic goals to maximize their growth. Selling – while often leading to a short-term dip in the top-line can lead to longer-term growth as capital is redeployed into higher growth core activities, expanding into new markets or developing new products.

Paying the right price
With 80% of executives open to offers even for prized assets, a 30% premium on a ‘fair’ price will bring half to the deal table. On the oder hand, 20% of executives say they would not sell a valued asset for any premium.

"Buyers and sellers base their pricing on particular sets of expectations resulting in deviating value intervals for the subject business and the final deal price will always result in the intervals' intersection. Although the seller may perceive selling a business at a premium a potential buyer may still enter into a lucky buy from its perspective. Price ranges have narrowed recently and we observe a renewed focus on deals following years of historically low M&A activity. Additional insights into sellers' price expectations will be of utmost interest for potential buyers closing deals at the lower end of their pricing interval.” says Lars Wiechen, Executive Director, Transaction Advisory Services, EY Romania.

Definite trends for some sectors
As with all aspects of M&A, different factors drive divestment activity across industries.
Life Sciences should be the most active divesting sector, with 41% expecting to sell in the next two years – the main reason being regulatory change. The key driver for divestments in Consumer Products is off-trend product (58%), followed by 44% who said reduced demand or market share would make them consider divesting.

In the fast moving Tech sector, half of executives said the biggest trend prompting them to consider divestments is big data and analytics developments, followed by cloud innovations and mobile as companies re-evaluate their core business and competitive positions.

Extracting value – leading practices proven to deliver
More than half of respondents have divested an asset in the past two years. The vast majority of those (80%) that pursued a strategic rather than opportunistic approach to a sale saw a positive impact on their valuation as a result – half of those experienced greater benefits than anticipated.

Planned divestments and the M&A story for 2014
The divestment plans of global executives will be a vital part of a developing M&A story for 2014. January could see the highest value recorded in the first month of the year since 2000. Deal value is currently running 150% higher than 2013 and 2012 . In terms of USD 1b+ deals, it is 400% higher. With 15 USD 1b+ deals and three USD 10b+ megadeals already announced, we are seeing a very robust start to 2014.

"Based on EY’s recent report on divestment as an option in the M&A market, we can conclude that the market has matured and this overall feeling is also replicated by the players present in Romania. Therefore, on the local market, there are subsidiaries of major multinational companies that can make the object of a transaction in an organized M&A process or in bilateral negotiations. Some of these assets could be sold even at a discount compared to a market valuation, considering the groups’ refocus on main markets. However, it should be noted that this adds to the relative lack of domestic capital that could finance such acquisitions, which is why we do not expect a significant volume of such transactions in Romania in the period ahead." Mihai Pop, Manager, Transaction Advisory Services, EY Romania.


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About the survey
The EY Global Corporate Divestment Study analyzes 720 interviews with corporate executives surveyed over September and October 2013 by FT Remark, the research and publishing arm of the Financial Times Group.

The survey includes respondents from the Americas, Asia Pacific, Europe, the Middle East and Africa. While a broad range of industries is included, the study focuses on five key sectors: consumer products, life sciences, oil and gas, power and utilities and technology. Respondents stated that they have direct knowledge of or hands-on experience with their company’s portfolio review and divestment activity.


About EY Romania
EY is one of the world's leading professional services firms with approximately 175,000 employees in 728 offices across 150 countries, and revenues of approximately $25.8 billion in 2013. Our network is the most integrated at global level and its vast resources allow us to help our clients benefit from every opportunity. In Romania, EY has been a leader on the professional services market since its set up in 1992. Our over 450 employees in Romania and Moldova provide seamless assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. From 1 July 2013, Ernst & Young becomes EY, the logo has been modified in response to this change and the company's new tagline becomes "Building a better working world". The new visual identity reflects the new strategy of EY, Vision 2020. For more information, please visit www.ey.com.

Global companies start to consider selling
More than half of global executives are open to selling their whole business

A third (33%) of global businesses are planning a sale in the next two years according to EY’s annual report Global Corporate Divestment Survey, which surveyed more than 700 corporate executives globally. The report reveals that 80% of global executives are open to offers for prized assets and a 30% premium would bring a majority of execs to the deal table.

In terms of options, 55% of global executives would consider a full sale of their business compared to 34% who would opt for a carve out and 14% an IPO.

Divestments are now a fundamental part of business strategy – selling is becoming as great a focus for many CEOs as buying.
The pace of innovation, changing purchasing patterns and the return of modest growth to the global economy – means business leaders will need to more regularly re-assess their portfolios and strategic goals to maximize their growth. Selling – while often leading to a short-term dip in the top-line can lead to longer-term growth as capital is redeployed into higher growth core activities, expanding into new markets or developing new products.

Paying the right price
With 80% of executives open to offers even for prized assets, a 30% premium on a ‘fair’ price will bring half to the deal table. On the oder hand, 20% of executives say they would not sell a valued asset for any premium.

"Buyers and sellers base their pricing on particular sets of expectations resulting in deviating value intervals for the subject business and the final deal price will always result in the intervals' intersection. Although the seller may perceive selling a business at a premium a potential buyer may still enter into a lucky buy from its perspective. Price ranges have narrowed recently and we observe a renewed focus on deals following years of historically low M&A activity. Additional insights into sellers' price expectations will be of utmost interest for potential buyers closing deals at the lower end of their pricing interval.” says Lars Wiechen, Executive Director, Transaction Advisory Services, EY Romania.

Definite trends for some sectors
As with all aspects of M&A, different factors drive divestment activity across industries.
Life Sciences should be the most active divesting sector, with 41% expecting to sell in the next two years – the main reason being regulatory change. The key driver for divestments in Consumer Products is off-trend product (58%), followed by 44% who said reduced demand or market share would make them consider divesting.

In the fast moving Tech sector, half of executives said the biggest trend prompting them to consider divestments is big data and analytics developments, followed by cloud innovations and mobile as companies re-evaluate their core business and competitive positions.

Extracting value – leading practices proven to deliver
More than half of respondents have divested an asset in the past two years. The vast majority of those (80%) that pursued a strategic rather than opportunistic approach to a sale saw a positive impact on their valuation as a result – half of those experienced greater benefits than anticipated.

Planned divestments and the M&A story for 2014
The divestment plans of global executives will be a vital part of a developing M&A story for 2014. January could see the highest value recorded in the first month of the year since 2000. Deal value is currently running 150% higher than 2013 and 2012 . In terms of USD 1b+ deals, it is 400% higher. With 15 USD 1b+ deals and three USD 10b+ megadeals already announced, we are seeing a very robust start to 2014.

"Based on EY’s recent report on divestment as an option in the M&A market, we can conclude that the market has matured and this overall feeling is also replicated by the players present in Romania. Therefore, on the local market, there are subsidiaries of major multinational companies that can make the object of a transaction in an organized M&A process or in bilateral negotiations. Some of these assets could be sold even at a discount compared to a market valuation, considering the groups’ refocus on main markets. However, it should be noted that this adds to the relative lack of domestic capital that could finance such acquisitions, which is why we do not expect a significant volume of such transactions in Romania in the period ahead." Mihai Pop, Manager, Transaction Advisory Services, EY Romania.


****

About the survey
The EY Global Corporate Divestment Study analyzes 720 interviews with corporate executives surveyed over September and October 2013 by FT Remark, the research and publishing arm of the Financial Times Group.

The survey includes respondents from the Americas, Asia Pacific, Europe, the Middle East and Africa. While a broad range of industries is included, the study focuses on five key sectors: consumer products, life sciences, oil and gas, power and utilities and technology. Respondents stated that they have direct knowledge of or hands-on experience with their company’s portfolio review and divestment activity.


About EY Romania
EY is one of the world's leading professional services firms with approximately 175,000 employees in 728 offices across 150 countries, and revenues of approximately $25.8 billion in 2013. Our network is the most integrated at global level and its vast resources allow us to help our clients benefit from every opportunity. In Romania, EY has been a leader on the professional services market since its set up in 1992. Our over 450 employees in Romania and Moldova provide seamless assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. From 1 July 2013, Ernst & Young becomes EY, the logo has been modified in response to this change and the company's new tagline becomes "Building a better working world". The new visual identity reflects the new strategy of EY, Vision 2020. For more information, please visit www.ey.com.

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