Size of Canadian divestments much higher than global, US average
Nearly half of Canadian companies look to divest in the next 12 months
- 46% of recent divestments exceeded $250m compared to 20% globally
- 26% say the need to fund new technology investments was their top reason to divest
- 49% of Canadian companies plan to divest in the next 12 months
TORONTO, March 21, 2019 /CNW/ - Forty-six percent of Canadian companies' recent divestments exceeded $250m, including 10% over $500m. That's compared to no deals that reported over $250m just one year ago, according to the EY Global Corporate Divestment Study 2019. One third of the divested businesses were worth over 5% of the parent company.
"The uptick in larger deal value signals a drastic shift in how Canadian companies define what's core to the business," says Doug Jenkinson, EY Canada Divestiture Leader. "Companies are taking a step back and looking to divestments as an avenue to generate meaningful amounts of capital and future-proof their remaining business in these volatile times. And this more disciplined approach is translating into fewer opportunistic deals."
Only 3% of respondents indicated their most recent divestment was triggered by an unsolicited approach by a buyer—down significantly from 19% last year.
"Companies aren't waiting for someone to knock on the door anymore," says Jenkinson. "Instead, more divestments are being triggered by the need to fund new technology investments or respond to sector convergence."
Similarly, two of Canada's biggest GDP contributing sectors, are divesting for more strategic purposes. Sixty-three percent of global oil and gas and 54% of financial services companies are investing funds raised in their last divestment into their core business.
The EY survey found that nearly half of respondents (49%) expect to divest in the next 12 months—and that many companies expect private equity (PE) to play a more active role. Seventy-nine percent of Canadian respondents say they experienced greater value when involving PE firms in their divestiture process, including 33% who saw an increase in purchase price. Even more (44%) reported a faster close time when PE firms were involved.
"The historical perception that private equity pays less for businesses than corporate buyers is reversing," says Jenkinson. "Private equity players are bringing a sharper focus on value, increased competition and faster close times to the divestment process."
Jenkinson add: "Speed and value are still key priorities, but Canadian companies are taking a more strategic portfolio approach by making well-informed divestment decisions that generate long-term value—and a competitive advantage—for the business."
View the full study online at: ey.com/divest/Canada
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SOURCE EY (Ernst & Young)
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