SINGAPORE (July 15): A large proportion of companies in Asia Pacific say they are planning to divest to reposition for growth, according to the EY 2020 Global Corporate Divestment Study.
The annual study surveyed over 400 executives in the APAC region, including close to 100 in SEA in the period before and after the onset of the Covid-19 pandemic.
The study found that some 79% of executives in Southeast Asia (SEA), and 75% of executives in Asia Pacific (APAC) have indicated that they are planning to divest within the next two years. The figures came in higher than the 70% and 74% registered just before the pandemic set in.
Over half of SEA executives (65%), and executives in APAC (59%) say they intend to divest their companies in the next 12 months.
Some 53% of SEA executives, and 56% of APAC executives indicate that they are more likely to divest to fund investments in technology. This is an increase from the 37% of respondents (30% for APAC) before the Covid-19 crisis.
With social distancing measures put in place, the pandemic has forced companies to rely on digital means to communicate and function. Divestments, respondents say, are an attractive option to fund such investments.
“This study comes at a pivotal moment when business executives are facing unprecedent[ed] disruption. Interestingly, SEA companies are showing a high intention to divest to help reshape their portfolios and reposition for growth beyond the crisis,” says Abhay Bangi, Asean sell and separate co-lead at EY.
“Sellers are also looking to fund new technology investments, especially digital enablers, as they reimagine their business models and prepare for the new normal,” he adds.
According to EY, companies with more constrained access to capital markets due to the Covid-19 outbreak, may need to turn to divestments. Over half of the respondents – 53% in SEA, and 54% in APAC – say they will need to raise capital in response to the potential impact of Covid-19 on their businesses.
The respondents indicate that they are also reducing debt through divestments, and reshaping their portfolio for a post-crisis world.
Respondents say they may also expect to see an increase in distressed divestitures over the next 12 months for companies that have been hard-hit by the pandemic.
The global outbreak also highlighted the potential vulnerability of global supply chains. According to the survey, 36% of global respondents plan to put more emphasis on their supply chains prior to divesting, up from 27% prior to the COVID-19 crisis.
According to the most recent EY Global Capital Confidence Barometer, 50% of SEA (APAC 67%) respondents say they have already taken active steps to restructure their supply chains.
Asset portfolios will also need to be reshaped for many companies in preparation for a post-COVID-19 world. This is an action 70% of respondents in SEA, and 54% in APAC say they will take, as companies make adjustments based on macroeconomic scenarios moving forward.
According to the survey, companies are actively preparing their assets for sale as part of their medium-term divestment strategies, although respondents say the strategies need to be adjusted.
Around half of respondents (50% in SEA, and 53% in APAC) say the economic impact of the pandemic will increase the price gap between what sellers expect, and what buyers are offering. In addition, respondents say (50% in SEA, and 52% in APAC) say the impact would create more uncertainty on the assets to divest – a sentiment that has increased from 32% in SEA, and 28% in APAC before the Covid-19 pandemic.
“Companies that are considering to sell their assets will benefit from dedicating more time and resources to prepare for scenario planning and assessing the implications of changing demand projections for strategy and capital reallocation,” says Daniel Tan, Asean sell and separate co-lead at EY.
