Companies are targeting partial sales to gain competitive advantage, especially against the background of changes in technology, customer preferences and shareholders' pressure, according to the EY Global Corporate Divestment Study 2019.
The annual study, made by 900 leading companies worldwide, shows that a favorable sales environment will remain, with 84% of companies planning this over the next two years. 81% of surveyed companies said optimizing their operational model would influence yielding assets plans this year, highlighting the growing trend among companies to be more flexible in front of new competitors and the existing ones.
"Companies need to strike a balance between the need to react quickly to change and the need to allocate the time to prepare for the yielding assets to facilitate better performance over the long term. This is a significant change over two years ago, when partial sales were not considered as broad as a strategic factor, as it is today. Many companies react correctly to new demands from customers and growing competition from emerging technologies and cross-sector rivals, "said Paul Hammes, EY Coordinator for consulting services in the disposal of assets.
"At the local level, the Romanian market is mainly influenced by the sales or exit plans of multinational groups (such as the partial sale of Liberty Global operations in Germany, Czech Republic, Hungary and Romania to Vodafone).
It is also noteworthy the recent trend of relocating the production factories of external producers to cheaper labor destinations that were expected in industries such as garments due to successive increases in recent years in the minimum wage. For local companies or groups, one can not speak of a notable trend of partial sales, as opposed to investment funds in Romania, for which the sale of assets is naturally achieved at the maturity of the asset.
Companies with Romanian capital continue to develop local diversification or regional expansion, especially in the neighboring countries. In contrast, a notable sale, which marks the biggest deal in agriculture, is the sale of Agricost to the Al Dahra Group, with similar transactions in agriculture being expected in the coming years. Large local groups with various activities are expected to start a portfolio analysis process and decide on partial business sales that are not in line with the group's future interests, "says Liliana Busoiu, Associate Partner, Assistance in Transactions, EY Romania.
According to the study, partial sales are more proactive, with strong impact than reactive responses to change. In the next 12 months, 70% of surveyed companies estimate partial sales that can cause profound changes in their organizations, compared with 50% in 2018.
The share of companies that invoke the weak competitive advantage of a business unit as the reason for the most recent asset release (a reactive decision) recorded a significant decrease from 85% to 69%.
Geopolitical uncertainties are accepted as an unpredictable factor in decision-making
The number of companies declaring that macroeconomic and geopolitical factors will influence their asset allocation decisions declined to 51% from 62% in 2018.
They may have acclimated to global uncertainties: 74% of companies still expect the geopolitical changes to increase operating costs, and 69% wonder whether existing cross-border trade agreements will remain unchanged.
Technology clears the boundaries between sectors and boosts partial business sales
Sectoral convergence is more likely to play a role in yielding assets decisions in the case of 70% of the company's leaders. They can no longer rely on the old rules of the game in order to maintain their competitiveness. Thus, 80% of companies expect the number of technology-generated sales to grow over the next 12 months, compared with 66% last year.
Sales target also private equity buyers
According to the study results, it is more important than ever, as at the time of sale, to have a robust asset-based argumentation, prepared in time, to answer the questions of a wider range of buyers. Fewer than two-thirds of sellers (67%) said the price difference between buyers and sellers was more than 20%, while last year only a quarter of sellers reported such a difference. Defining an operational model is extremely important for private equity buyers who have sufficient investment resources but not operational synergies. Therefore, it is important to convey confidence that the ceded asset was fully prepared for separation.
A quarter of private equity firms said a well-designed presentation of the asset as a stand-alone entity and a related cost model are essential to remain in the sales process. And half of them said access to detailed data was a key factor in their decision to remain in a bidding process. The details are important, but also the accuracy: 39% of the private equity bidders said that if the target entity does not achieve the expected results, they reduce the price or give up the transaction.