Part 1
Develop a clear view of how each business drives long-term value
Divestments should be more than just one-off decisions based on short-term financial factors.
Key findings
44%of CEOs say they have difficulty explaining divestment rationale to the board and key stakeholders.
59%
of CEOs acknowledge they should provide better guidance on what they regard as core and non-core business.
Top considerations in divestment strategy:
- Have a clear view on each business’s market and underlying growth in demand, competitive advantage, alignment to the company’s vision and potential for long-term value creation from a financial, customer, people and societal standpoint.
- Pursuing divestments can help accelerate investments in technology, new products and geographies to meet customer needs and fuel new growth for RemainCo.
- Even a strong-performing business that does not fit with your corporate strategy might be tying up capital that could be better deployed on higher-impact investments. Communicating this can help rally stakeholders behind a decision to carve out or spin off a business.
Learn more about how CEOs can develop a successful divestment strategy.
Part 2
Leverage portfolio reviews to drive strategic divestment decisions
Portfolios should be reviewed at the business unit level to align with potential carve-out decisions.
Key findings
56%of global CFOs say they changed their key performance indicator (KPI) rankings in the past three years.
37%
of companies say activist activity in their sector prompted a review of strategic alternatives in the past 12 months.
Top considerations in portfolio reviews:
- Rigorously review the portfolio using a few key metrics related to how each business unit complements the enterprise strategy and contributes to total shareholder return through a combination of growth and return on invested capital.
- Take action once it’s clear a business should be divested, as the value of a business unit starved for investment can quickly erode.
- Evaluate strategic alternatives, including an asset-light approach, a staged exit or a joint venture with a strategic partner.
Learn more about how CFOs can elevate portfolio reviews to drive strategic divestment decisions.
Part 3
Use the divestment as an opportunity to reimagine RemainCo
A large or highly entangled divestment is an opportunity to reimagine RemainCo while the organization is primed for change.
Key findings
56%say they wish they had focused on realignment of RemainCo earlier in the divestment process.
60%
of executives failed to broaden their efforts to improve RemainCo beyond simply eliminating costs.
Top considerations in RemainCo growth opportunities:
- Divestments are a catalyst to challenge the status quo and reimagine RemainCo for the future because the organization is already mobilized for change and the operating model is being re-examined.
- Re-evaluating your purpose and vision may require a redesign of your enterprise business archetype to focus on product, market, value chain, function or a hybrid model.
- The operating model should be changed to support the new archetype. All aspects should be challenged, including processes, systems, assets, people and third-party vendors.
Learn more about why divestments should be a catalyst for CEOs to reimagine RemainCo.
Related articles
Summary
Aligning bold divestment decisions with long-term strategy can help CEOs increase stakeholder value and reimagine the remaining business. Download the 2021 EY Global Corporate Divestment Study (pdf) to learn more.
