74% companies plan to divest non-core assets in 24 months: EY India survey

Survey highlights that a key challenge faced by CEOs today is identifying the right time to divest assets as 70% of surveyed firms said they held on to assets for too long

The continuing effects of the Covid-19 pandemic are providing an impetus to companies to focus on divesting non-core assets, with 74 per cent of the surveyed companies planning to divest in the next 24-months, says the EY India Corporate Divestment Study 2021.

The survey highlights that one of the biggest challenges faced by CEOs today is identifying the right time to divest assets as 70 per cent of surveyed companies said that they held on to assets for too long.

Companies acknowledge the importance of divestments as it allows them to focus on long term value opportunities in the core business. In line with this agenda, majority of the companies (80 per cent) are using the divestment proceeds to invest in technology to support their core operations. In addition, CEOs are also looking to prioritize operational performance of the RemainCo, while developing the divestment strategy.

After effectuating a divestment, 53 per cent CFOs agreed that divesting assets allowed them to streamline their operations and pay attention to higher growth opportunities across the core business.

A successful divestment requires that the process be viewed as a part of the corporate strategy rather than a one-off decision. A clear view on strategic alignment of each business, supported by rigorous portfolio reviews can help CFOs identify the right divestment candidates and sharpen the focus on core businesses. It is also important for companies not to lose sight of the transformational opportunities for the RemainCo, while planning for a divestment, the EY survey observed.

Naveen Tiwari, Partner and Head, Carve-Out and Separations, Strategy & Transactions, EY India, said,  “Divestments can not only help companies have a clear focus on core business, it can also provide much required impetus to build resilience during the current crisis. Companies need to place particular emphasis on structured portfolio reviews and a comprehensive divestment strategy to drive maximum value."