E&Y: 35% M&E companies say tax changes are making it more difficult to execute divestment deals

The M&E Global Corporate Divestment Study 2018 by EY Global M&E Sector says 35% of media and entertainment companies say tax changes are making it more difficult to execute divestment deals. The study titled ‘How can divesting fuel your future growth?’ is a survey of executives from large global M&E companies that gauge plans for approaching divestments, managing portfolio strategy, improving divestment execution and making the remaining business agile.

Highlights from the survey:

87% of companies are planning to divest within the next two years as per 2018 data, while in 2017, 33% companies divested.

70% of executives feel the changing technology landscape is directly influencing their divestment plans in 2018. Against this, 73% executives considered this influence in 2017.

65% of companies hold onto assets too long when they should have divested, as per 2018 findings; however, in 2017, 54% held onto assets.

50% said not presenting the business a stand-alone had “scared off” buyers or prompted lower bids, against 27% who stated so in 2017.

Deal planning and execution: 60% continued to create value in a business they planned to divest. 42% say not presenting the business as stand-alone “scared off” buyers or prompted lower bids.

Market forces: 74% say the changing technology landscape is directly influencing their divestment plans. 80% say tax policy changes are a geopolitical driver in their plans to divest.

Strategic reviews: 56% say they held onto assets too long when they should have divested. 64% struggle to identify a team with the right analytics and technical skills to drive portfolio reviews.

Technology is changing business models

Companies are facing intense pressure to evolve their business models using rapidly advancing technology. Across all sectors, companies that divest to fund new technology investments are 48% likelier to achieve a higher valuation multiple on the remaining business post-divestment than those that divest opportunistically. 59% of media and entertainment companies expect to see more divestment activity due to industry consolidation over the next 12 months.

Divest to get a competitive edge

For 90% of executives, the top divestment driver continues to be a business unit’s weak competitive position in the market – up from 57% in our 2017 study. Across all sectors, companies that divest in order to focus on top-performing assets, particularly where technology can provide a competitive edge, are 21% more likely to achieve a higher-than-expected sale price than those that divest opportunistically.

The results of the survey are based on interviews with 900+ corporate executives conducted between October and December 2017; separate survey of 100 private equity executives during the same time frame. Companies from 60 countries and 11 industry sectors 85% CEOs, CFOs or other C-level executives.

The survey shows that most companies are facing intense pressure to evolve their business models and companies are planning for divestments to use the proceeds to fund investment in new technology. The report also shows “lessons learned” that can help make divestment strategies more successful, including “strategic and programmed portfolio review process has become an imperative,” and “effectively positioning and presenting the business for sale is crucial to extract value.”

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