Divesting during disruption – can it help Canadian companies?

Divesting during disruption – can it help Canadian companies?

What strategies are Canadian companies using to respond to economic uncertainty and technological disruption? A few have been trimming their portfolio of businesses – and creating value as they do so – according to the EY Global Corporate Divestment Study 2017.

The EY study found almost three out of five Canadian executives surveyed had disposed of one or more businesses that accounted for less than 5% of the parent company within the last three years. The majority of respondents (51%) attributed their businesses’ higher valuation as a result of the divestments. Most survey respondents (84%) also believed their last divestment had created long-term value for their business.

Nine industry sectors were represented in the survey, with a focus on financial services, consumer products, technology, and life sciences. Of the people surveyed, 78% were CEOs, CFOs, or held senior -level positions.

Respondents named macroeconomic volatility, geopolitical instability, and technological change as top reasons for cutting businesses. However, technological change was identified as an opportunity for growth, as well as a risk. Globally, 43% of the companies surveyed plan to use divestment proceeds to invest in building digital capacity.

When compared to their global peers, Canadian companies are more likely to divest, as well as to identify divestment as a successful strategy for creating value: 59% had cut businesses that were less than 5% of the parent company, compared to 41% of global peers, and 81% of Canadian respondents believed they had generated value in their businesses subject to a divestment, compared to 67% of global respondents.

Canadian executives are also ahead of their global peers when it comes to incorporating analytics into their divesting strategy. The majority (86%) of Canadian respondents stated they plan to use techniques such as predictive analytics in future divestment efforts, a rate 10% higher than that of global respondents.

In this age of disruption and increased portfolio turnover, the study emphasizes the need for companies, both Canadian and worldwide, to become more agile through strategies that include rethinking operating models, outsourcing, and selling off non-core assets such as infrastructure and back-office assets. Other strategies for increased agility encompass investing in the following: innovative businesses and technology platforms such as robotics that automate manual tasks, cloud and software as a service (SaaS) infrastructure that can be scaled up or down depending upon usage, and tools that increase efficiencies, such as digital supply chains or smart products connected to the Internet of Things.

This article is courtesy of the Chartered Professional Accountants of British Columbia and appeared in their Industry Update.

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