Companies tapping asset sales to fuel growth

APAC divestment appetite growing in 2016.

It has been noted that nearly half of all Asia-Pacific corporations polled by Ernst & Young actively plan another divestment within the next two years, compared to just 15% one year ago.

According to a research note from EY, further, half of APAC firms expect opportunistic bids as the catalyst for their next divestment sale, though EY research shows this strategy is among least likely to positively affect the remaining firm’s valuation.

Meanwhile, 81% in Asia-Pacific believe their divestments create long-term corporate value – with deal proceeds invested in core business, new products/markets, or further M&A.

Also, just 43% of Asia-Pacific corporates earn above-expectation post-deal valuations, versus 63% global peers; data suggests weak market communication on deal rationale and value.

The report further said financial services acquisitions by emerging market players are expected to double to 51% of global finance divestment deals in 2016. In Asia-Pacific, 59% of acquirers are expected to be regulated domestic players.

Here's more from EY:

Stephen Lomas, Asia-Pacific Divestiture and Transaction Advisory Services Leader sees the following key trends in 2016: The divestment process has arrived in Asia-Pacific – with 47% (compared to 15% in 2015) of corporates in the region expecting to initiate a divestment within the next two years, and most of the rest (47%) at least open to opportunities if approached.

81% in Asia-Pacific see divestment as part of their long-term corporate growth strategy – with 35% planning to reinvest proceeds in the firm’s core business, 24% planning to fund expansion into new products or markets, and 14% dedicating the cash to further M&A. Divestment is gaining ground on the IPO as a key method of business remodeling.

Ernst & Young expects to see heavy levels of divestment in Australia and New Zealand led by government plans to raise funds for new infrastructure. Source of asset disposals will come from developed areas like ports, electricity and water infrastructure.

Weak commodity prices will filter through to the Asia-Pacific energy sector, with some regional oil companies likely to divest assets if crude prices remain depressed through 2016.

US and European corporates will continue to make major divestments of assets they own in the region, while Asia business owners are still more hesitant to sell through divestment than IPO, even for non-core business.