TORONTO—According to Ernst & Young (EY), Canadian companies are actively pruning their business portfolios.
73 per cent of respondents in EY’s 2017 Corporate Divestment Study, an annual survey of corporate executives, said they were likely to divest as a result of macroeconomic volatility.
“Canadian companies are reaching deep to identify non-core businesses,” said Doug Jenkinson, EY Canada’s Divesture Advisory leader. “When they’ve divested, 51 per cent reported finding their divestment led to a valuation of the remaining business that exceeded their expectations.”
81 per cent of Canadian companies believe they have been effective in continuing to create value in their businesses subject to a divestment, compared to only 67 per cent of global respondents.
“Canadians are ahead of their global peers when it comes to using analytics, too. 86 per cent of Canadian respondents said they plan to use sophisticated techniques such as predictive analytics to assist in their divestment efforts, which is more than 10 per cent points higher than their global peers,” said Jenkinson.
At the same time, technological change is weighing on the minds of Canadian businesses: 54 per cent of respondents noted this as a reason for considering a divestment, and 46 per cent planned to redeploy divestment proceeds into digital capabilities.
Looking forward, 73 per cent of Canadian companies are planning more regular portfolio reviews to allow them to better react to the disruptive forces facing their business.
Here’s how corporate divestment looks across several economic sectors:
- Financial Services: 58 per cent of financial services companies globally expect to make a divestment in the next two years, higher than across all sectors. At the same time, 72 percent are considering a joint venture with a FinTech business to address disruptive threats or to reduce costs.
- Technology: 80 per cent of tech executives say digital transformation is influencing divestment plans, while 67 per cent cite underlying industry trends, such as cloud and software as a service, as driving factors.
- Life Sciences: 56 per cent of life sciences executives say the need to generate funds for investment in core businesses was one of their major reasons for narrowing their portfolio.
- Private Equity: Globally, 86 per cent of private equity funds do not have a systematic exit process and playbook to maximize the value of divestments, and 69 per cent do not consistently dedicate resources to evaluate those opportunities in the first place.