Consumer products and retail bosses expect the wave of global M&A to continue in 2016 as portfolio optimisation will continue to drive strategic sales from big corporates.
Some 60% of the 1,000 global corporate and private equity executives quizzed by EY for its 2016 Global Corporate Divestment Study expect a further increase in strategic sellers in 2016 after last year’s M&A volumes rebounded to pre-recession levels.
Nearly half of those quizzed expect to divest non-core parts of their portfolios over the next two years and another 46% said they remain open to the possibility.
Half of consumer and retail respondents said their most recent divestments were motivated by a desire to prioritise higher margin parts of their business, while 44% said they have sold in response to changing consumer preferences.
However, despite the growing importance of optimising portfolios, EY’s study found 56% of consumer products companies recently divested for opportunistic reasons – such as an unsolicited approach from a buyer.
EY suggests this statistic shows the portfolio optimisation process still has some way to go, with 51% of bosses agreeing shortcomings in the review process have resulted in failure to achieve the intended results.
“The pace of change and a need for a proactive approach to divestment have made data quality more important than ever,” said EY global customer products retail leader Blaise Girard. “Yet fewer than half the companies surveyed are very confident in their most critical data sources.”
Additionally, a number of companies admit to not acting fast enough on the results of portfolio reviews, with 54% of consumer and retail companies admitting to holding onto assets too long when they should have divested them.
“Too often, companies carry legacy brands that, while well established and perceived as a core part of their portfolio, are underperforming,” EY said. “Stripping out these brands allows companies to divert resources toward assets with a higher growth potential.”
Large multinationals have concentrated on shedding non-core assets, but a lack of focus on these assets while still under the original company’s control. Some 47% admitted a lack of focus on non-core business or competing priorities caused value erosion of a business.
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