A new report by EY says nearly half of Canadian companies are looking to divest assets in the next 12 months.
The EY Global Corporate Divestment Study 2019 also found that 46 per cent Canadian companies’ recent divestments exceeded $250 million compared to 20 per cent globally. Ten per cent of the deals were for over $500 million. The study said there were no deals that were reported for over $250 million over a year ago and one third of the divested businesses were worth over five per cent 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,” said Doug Jenkinson, EY Canada Divestiture Leader, in a statement. “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.
“Companies aren’t waiting for someone to knock on the door anymore. Instead, more divestments are being triggered by the need to fund new technology investments or respond to sector convergence.”
EY said that only three per cent of respondents indicated their most recent divestment was triggered by an unsolicited approach by a buyer—down significantly from 19 per cent last year.
It said 63 per cent of global oil and gas and 54 per cent of financial services companies are investing funds raised in their last divestment into their core business.
EY said its survey found 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 per cent who saw an increase in purchase price. Even more (44 per cent) reported a faster close time when PE firms were involved, it said.
“The historical perception that private equity pays less for businesses than corporate buyers is reversing,” said Jenkinson. “Private equity players are bringing a sharper focus on value, increased competition and faster close times to the divestment process.
“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.”
Mario Toneguzzi is a Troy Media business reporter based in Calgary.