1Global Corporate Divestment Study

2015 | ey.com/divest

Closing the deal: strategies to increase speed and value

2Leading companies view divestments as a fundamental part of their capital strategy, especially to fund growth. More than half of the companies surveyed for our latest EY Global Corporate Divestment Study expect the number of strategic sellers to increase in the next 12 months.

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3Companies often struggle to get the right information to make good portfolio decisions and to balance speed with value when selling assets. Here are the highlights of our 2015 Global Corporate Divestment Study:

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say they need better analytics tools to improve portfolio reviews

of executives completed their deal on time by starting preparations earlier

g^jekYj]mkaf_divestments to fund growth

74%

value creation

private equity

Companies can learn

lessons from

Preparation shortcuts

delay time to closeelongate diligence and

55%

50%

saw an increased valuation multiple in the remaining business after their last divestment

66%

Why you should consider divesting

How you can increase shareholder value

How to increase speed and certainty

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More investments in analytical tools to model portfolio decisions would lead us in the right direction and help us capitalize on ghhgjlmfala]k^Ykl]jl`Yf[geh]lalgjk&Oal`]^[a]fllggdk$o]could shift our focus and switch back as needed.

Executive at a Germany-based automotive company

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What do you expect to see in the divestment market over the next 12 months?

Stay the same IncreaseDecrease

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of executives say that closing deals quickly and with certainty is more important than waiting longer to secure a higher price.

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Understand business unit cost allocations

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Use the right industry benchmarks

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How big data can help you make portfolio decisions and prepare for a divestment

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say that better communication between the board/strategy and M&A team would improve portfolio review effectiveness.

25%

kYql`Yl_j]Yl]j[gf\]flaYdalqg^f\af_kwould make reviews more effective.

39%

Frequent portfolio reviews help us assess every business unit at equal intervals and on set targets. This makes management more aware about the businesss actual hjglYZadalq$Yf\f][]kkYjq[`Yf_]k[YfZ]eY\]ja_`lYoYq&

Executive at a US-based consumer products company

10

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If you have 12-24 months before you prepare for a sale, focus on:

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Sources of annual EBITDA growth in the US, 2006131

Principal drivers of organic revenue growth in the US, 2007131

1 Source: EY Private Equity Value Study, 2014

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11

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Extracting working capital. ;gehYfa]kg^l]ff]_d][ll`akaehgjlYflnYdm][j]Ylagfd]n]jgfdq+- l`]dgo]klh]j[]flY_]!g^]p][mlan]k\a\al&@go]n]j$]pljY[laf_ ogjcaf_[YhalYdoYkk]d][l]\egklg^l]f *)!Ykl`]kl]h l`Yl[gehYfa]k\a\fgllYc]ZmlZ]da]n]l`]qogmd\`Yn]Z]f]l]\^jgel`]egkl&@]j]alakY\nakYZd]lg^gddgol`]d]Y\g^H=$o`a[`g^l]f]pljY[lkogjcaf_[YhalYdlgj]afn]klaf_jgol`Yj]Yk&L`]hjgZd]eakl`YlZmq]jk_]f]jYddqogflhYq^gj]p[]kkogjcaf_[YhalYd&;gehYfa]khdYffaf_lg\an]klYZmkaf]kkf]]\gfdq]fgm_`ogjcaf_[YhalYdlgjmfl`]Zmkaf]kkgfY\Yq%lg%\YqZYkak&Egj][Yk`l`Yfl`Ylk`gmd\Z]hmllgogjchjagjlgkYd]&>g[mkaf_gfl`akg^l]fdgo%`Yf_af_^jmaloaddYdkg[Ymk]^]o]j\akjmhlagfkl`Yf\a^[mdl[gkl%[mllaf_\][akagfkj]dYl]\lgh]jkgff]dgjkmhhda]jk&Cutting costs through procurement.;gehYfa]k[Yf]fl]jaflg_jgmhhmj[`Ykaf_gj_YfarYlagfk$gj]n]f^gjel`]ajgofZmq]j[gfkgjlaY$lgj]\m[][gklkYf\]f`Yf[]eYj_afk&

If you have limited time less than 12 months before you start preparing for sale:

NYdm][j]Ylagfghlagfk^gj]f`Yf[af_kYd]hja[]Yj]fYjjgo]jafl`akk`gjllae]^jYe]Z][Ymk]l`]Zmq]joaddoYfllgcfgol`YlnYdm][YfZ]j]Ydar]\Yf\kmklYaf]\gn]jl`]dgf_l]je&A^l`]k]dd]j[Yffgl^mddqaehd]e]fll`]nYdm][j]YlagfafalaYlan]k$alk`gmd\Yld]Ykl\]n]dghY\]lYad]\jgY\eYhl`Ylaf[dm\]k]ph][l]\afn]kle]flkYf\]p][mlagfhdYfk&

Which of the following pre-sale value creation initiatives did you undertake?

Which step did you not do but now feel you ogmd\`Yn]Z]f]l]\^jgel`]egkl7=pljY[laf_ogjcaf_[YhalYd

21%

Gh]jYlagfYdaehjgn]e]flklgj]\m[][gklk'aehjgn]eYj_af19%

Gh]jYlagfYddqk]hYjYlaf_l`]Zmkaf]kkhYjlaYddqgj^mddq16%

Ghlaearaf_l`]lYpkljm[lmj]16%

=f`Yf[af_j]n]fm] ]&_&$hjg\m[laehjgn]e]flgj\akljaZmlagf]phYfkagf!

19%

Ghlaearaf_d]_Ydkljm[lmj] ]&_&$hmllaf_[Yjn]\%gmlYkk]lkaflgYf]od]_Ydkljm[lmj]!

8%

Ghlaearaf_d]_Ydkljm[lmj] ]&_&$hmllaf_[Yjn]\%gmlYkk]lkaflgYf]od]_Ydkljm[lmj]!

66%20%

Gh]jYlagfYdaehjgn]e]flklgj]\m[][gklk'aehjgn]eYj_af63%

40%

=f`Yf[af_j]n]fm] ]&_&$hjg\m[laehjgn]e]flgj\akljaZmlagf]phYfkagf!

62%40%

Gh]jYlagfYddqk]hYjYlaf_l`]Zmkaf]kkhYjlaYddqgj^mddq57%

25%

=pljY[laf_ogjcaf_[YhalYd35%

29%

Ghlaear]\l`]lYpkljm[lmj]64%

20%

Most important for enhancing valueUndertook

Few executives extracted working capital, but most said l`]qogmd\`Yn]Z]f]l]\from doing so

12

Kge]afalaYlan]kl`YleYq`Yn]Y_j]Yl]j[`Yf[]g^Y\\af_nYdm]j]dYlan]dqima[cdqaf[dm\]j]f]_glaYlaf_oal`n]f\gjk$j]\m[af_\akljaZmlagfYf\K?9[gklk$]pljY[laf_ogjcaf_[YhalYdYf\k]ddaf_g^^j]Yd]klYl]&

Fgk][j]lkYm[]L`]H=hdYqZggc\g]kfgl`Yn]mfaim]d]n]jklghmdd&H=^g[mk]kgfnYdm][j]YlagfZqZ]af_\ak[ahdaf]\oal`hdYffaf_$e]Ykmjaf_$Y[[gmflYZadalqYf\j]oYj\af_Y[`a]n]e]fl&L`akYhhjgY[`[j]Yl]kY_j]Yl]jk]fk]g^mj_]f[qYf\eYfY_]e]fl^g[mkgfnYdm][j]YlagfafalaYlan]k& Governance model. H=gof]jklYdclgeYfY_]e]fl

^j]im]fldq&Afl`][gjhgjYl]ogjd\$o]km__]klegj]^j]im]flYf\Y[lagf%gja]fl]\e]]laf_klgaf[j]Yk]Yll]flagfgfnYdm][j]Ylagf&;gjhgjYl]gj_YfarYlagfkYdkgk`gmd\eYc]gZb][lan]\][akagfkZYk]\gfjgZmklaf^gjeYlagf$afkl]Y\g^d]llaf_afl]jfYdhgdala[kYf\[geh]lalagf^gjj]kgmj[]kaeh]\]hjg_j]kk&

Rewards.H=g^l]fg^^]jk]imalq%lqh]j]oYj\klg[j]Yl]af[]flan]kl`jgm_`gmll`]nYdm][j]Ylagfhjg[]kk&;gjhgjYl]kaf[]flan]hjg_jYekYj]g^l]fdafc]\lg_jgmhh]j^gjeYf[]Yf\k`gmd\afkl]Y\dafc\aj][ldqlgaf\ana\mYdZmkaf]kkmfalh]j^gjeYf[]&

PE focuses more on value creation by being disciplined with planning, measuring, accountability and rewarding achievement

We wanted to improve investor sentiment, so earning a high value from the divestment was important. With this vision, we increased the value of the deal by enhancing performance and communicating well with the buyer.

=p][mlan]YlYf9mkljYdaY%ZYk]\fYf[aYdk]jna[]k[gehYfq

Management accountability.H=l]f\klgeYc]ima[c]j\][akagfkj]_Yj\af_Y[[gmflYZadalqZ][Ymk]l`][geemfa[Ylagfdaf]kYj]k`gjl]j&GmjH=klm\q^gmf\l`Yl`Ynaf_l`]ja_`leYfY_]e]fll]YeYll`]klYjlg^l`]\]Yd$jYl`]jl`Yf_gaf_l`jgm_`eYfY_]e]fl[`Yf_]kdYl]j$akgf]g^l`]^Y[lgjkegklkljgf_dq[gjj]dYl]\oal`k`gjl]j`gd\h]jag\k$`a_`]j=:AL

13

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@go[Yfqgmaehjgn] \an]kle]fl]p][mlagf7

14

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of executives say they should improve on determining their IT separation requirements

optimized the tax structure pre-sale

said it was the most important initiative for adding value

didnt do it but said they ogmd\`Yn]Z]f]l]\egklfrom having done so

50% 64% 20% 16%

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Leading practices

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9fla[ahYl]ljYfkalagfYdk]jna[]f]]\kYf\hgl]flaYd_dgZYdlYpkqf]j_a]k$l`]j]Zq]f`Yf[af_l`]nYdm]g^l`][Yjn]%gmlZmkaf]kklghjgkh][lan]Zmq]jk

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15

L]ddl`]nYdm]klgjqK]dd]jkemklYfYdqr]l`]ajZmkaf]kk^jgeYZmq]jkh]jkh][lan]&AfhYjla[mdYj$hjgna\af_lYadgj]\af^gjeYlagfj]_Yj\af_hgl]flaYdZmq]jkqf]j_a]k$gf]%lae][gkl]klaeYl]kYf\YnYdm][j]YlagfjgY\eYhYj]l`]egkl]^^][lan]afaf[j]Ykaf_l`]Ykk]lkYlljY[lan]f]kkYf\aehjgnaf_ljYfkY[lagfkh]]\&

Which of the following buyer communication initiatives did you undertake?

Hj]k]fl]\l`]kqf]j_qghhgjlmfalq^gj]Y[`dac]dqZmq]j71%

39%

Hj]hYj]\Ym\al]\fYf[aYdklYl]e]flk^gjl`]\an]kl]\Zmkaf]kk62%

18%

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Provide an estimate of one-time costs. Gfdq--lggcl`akkl]h&@Yd^g^l`gk]o`g\a\flkYql`]qogmd\`Yn]Z]f]l]\egkl^jge`Ynaf_\gf]kg&L`akakaehgjlYfl$Z][Ymk]alklj]f_l`]fkYk]dd]jkf]_glaYlaf_hgo]jo`]fal[Yf\]egfkljYl]l`Ylal`Yk[gfka\]j]\l`]Zmkaf]kkk[mjj]flkljm[lmj]Yf\l`][gklk]kk]flaYdlg\]dan]jaf_o`Ylakf]]\]\lgYZmq]j&>mjl`]jegj]$Zmq]jkoYfllgZ][d]Yj]pY[ldq`gol`][gklk`Yn]Z]]f[Yd[mdYl]\$]kh][aYddqa^l`]qYj]Z]af_Ykc]\lghjgna\]hYjlg^l`]^mf\af_&

Develop a value creation roadmap. Gfdq-1g^k]dd]jk\]n]dgh]\YnYdm][j]YlagfjgY\eYhlg`]dhaf[j]Yk]kYd]hja[]&:ml+/g^l`gk]kYql`YlaloYkl`]kaf_d]egklaehgjlYflkl]h^gj[j]Ylaf_nYdm]&JgY\eYhkYj]YfaehgjlYfl[geemfa[Ylagflggdlgk`gohgl]flaYdZmq]jko`YlnYdm][j]YlagfafalaYlan]kl`]k]dd]j`YkafalaYl]\gjhdYff]\$Yf\o`a[`[Yf]f`Yf[][gehYfqnYdm]^mjl`]jgf[]l`]qYj][gehd]l]\Zql`]Zmq]j&=pYehd]kaf[dm\]hdYfljYlagfYdarYlagf$gh]jYlagfYdaehjgn]e]flkYf\Ydj]Y\qafalaYl]\j]n]fm]]f`Yf[]e]flgjj]kljm[lmjaf_Y[lagfk& @go]n]j$jgY\eYhkYj]gfdq[j]\aZd]o`]fk]dd]jk\]egfkljYl]Y`aklgja[YdljY[cj][gj\g^Y[`a]n]e]fl&L`akakhYjla[mdYjdqaehgjlYflo`]fal[ge]klgdYmf[`af_f]ohjg\m[lkgjkm[[]kk^mddq[gehd]l]\J

16

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Kh]]\j]imaj]klYadgj]\hj]hYjYlagf^gjYfal]_jgmhg^Zmq]jkO`]f[gehYfa]k^g[mkkgd]dqgflae]$l`]qg^l]flYc]k`gjl[mlkYf\j]d]Yk]af[gehd]l]gjafY[[mjYl]af^gjeYlagf&L`]j]kmdlakl`YlZmq]jkeYq\jghgmla^l`]qj]fgl[ge^gjlYZd]oal`l`]afn]kle]fl[Yk]&H=Zmq]jk$afhYjla[mdYj$eYqdgk]^Yal`afl`]eYfY_]e]fll]YeYf\f]_glaYlagfk[YfZ][ge]hjgljY[l]\YkZmq]jkdggc^gjYdl]jfYlan]jgml]klgYfko]jl`]ajim]klagfk& L`akmf[]jlYaflqakg^l]fj]][l]\afYdgo]jfYdg^^]j$hYjla[mdYjdqa^[geh]lalagf`Yk^Ydd]fg^^\mjaf_l`]Za\hjg[]kk&L`]c]qlg]ph]\alaf_l`]\]Ydaklgmf\]jklYf\l`]dac]dqZmq]jkYf\`golghj]hYj]^gjl`Ylfal]_jgmh&

How to expedite the process Potential consequences of not taking this step

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17

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;j]Yl]Ykljgf_nYdm]klgjql`YlqgmcfgooaddklYf\mhlgZmq]jk[jmlafq

Sellers need to tell a strong, credible value story and weigh the opportunity costs of waiting too long for the right price

The delay in divestment preparation Yf\l`]af]^[a]fl[ggj\afYlagfbetween business functions affected transaction value as market conditions were changing drastically.

Because we were focused on speed, we lowered the asset price and did not do enough to search out suitable buyers. Our hastiness resulted in a failure to meet our value expectations.

Prioritizing operational steps and then estimating the time required for completion was the most crucial aspect that we should have focused on more. This heavily impacted the time it took for the divestment.

We didnt do a good job of identifying stranded costs or providing transparency in the fYf[aYdklYl]e]flk&O]dgkl[gfljgdof the situation, and it took us a lot longer to close the deal.

Executive at a UK-based technology company

Executive at a Netherlands-based media and entertainment company

Executive at a France-based fYf[aYdk]jna[]k[gehYfq

Executive at a US-based oil and gas company

L`]kh]]\%n]jkmk%nYdm][`Ydd]f_]

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18

About this studyL`]=Q?dgZYd;gjhgjYl]LJ]eYjc$l`]j]k]Yj[`Yf\hmZdak`af_Yjeg^l`]>afYf[aYdLae]k?jgmh& =p][mlan]kYj]^jge[gehYfa]kY[jgkkl`]9e]ja[Yk$

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eYj_afkl][`faim]kl`YlH=jek`Yn]mk]\oal`_j]Ylkm[[]kk&Af^Y[l$H=`YkeYfqnYdm][j]Ylagfd]kkgfklgg^^]j$af[dm\af_\ak[ahdaf]\hdYffaf_$e]Ykmj]e]fl$Y[[gmflYZadalqYf\j]oYj\af_g^Y[`a]n]e]fl&L`]k]Yj]YddkljYl]_a]kl`Yl[j]Yl]Yk]fk]g^mj_]f[qYf\^gkl]jeYfY_]e]flYll]flagflgnYdm][j]Ylagf&;gehYfa]kl`Yl[gf\m[l^j]im]flhgjl^gdagj]na]okmkaf_l`]ja_`l\YlYYf\YfYdqla[k$Yf\l`YllYc]l`]lae]lghj]hYj]Y[j]\aZd]klgjqlYadgj]\lgkh][a[Zmq]jk$klYf\l`]Z]kl[`Yf[]g^eYpaearaf_Zgl`kh]]\Yf\nYdm]afl`]aj\an]kle]flkYf\af[j]Ykaf_nYdmYlagfemdlahd]kafl`]ajj]eYafaf_Zmkaf]kk]k&Gfdq)1g^]p][mlan]ke]lYddl`j]]g^l`]k]km[[]kke]lja[k&L`]k][gehYfa]kYj]Z]klhgkalagf]\lghjgY[lan]dq_YafeYjc]lk`Yj]Yf\Y\Yhlima[cdqlg^mlmj]eYjc]l[`Yf_]k&Lgd]Yjfegj]YZgmll`][jala[Ydkl]hklg[Yjn]gmlYZmkaf]kkafkapegfl`k$Ykcqgmj=Q[gflY[l^gjgmjRoadmap to carve-out sale success&

Conclusion

RemarkResearch from the Financial Times Group

Produced in association with

19

ContactsPip McCrostie EY Global Vice ChairTransaction Advisory Services

pip.mccrostie@uk.ey.com +44 20 7980 0500

How EY can helpEYs dedicated, multifunctional divestment professionals can help clients improve portfolio management, divestment strategy and execution.

First, we help clients understand the performance of their businesses relative to peers and the rest of their portfolio. And then we help clients decide where capital can be released from underperforming or non-core activities and reallocated toward higher-growth areas.

We then work with clients to prepare them for a divestment and become an informed negotiator. Our work with corporate and PE clients includes a variety of divestments, including sales of the entire company, carve-outs, spin-offs and joint ventures.

For carve-outs, in particular, we advise on which businesses are worth investing in and which may be worth more to another owner. Our sector-focused teams can also help clients understand the effect a divestment could have on the remaining companys growth, brand and stakeholders.

Furthermore, we can help maximize transaction value by guiding you through preparation and execution and removing any potential bumps in the road before buyers get involved. For example, we create a compelling value story by analyzing the growth opportunity, assessing underlying trends and identifying hidden value in earnings, corporate allocations, real estate, working capital, human resources, IT, operations and tax. Finally, we assist with negotiations, Day One readiness, and helping your company manage its remaining cost structure and focus on future growth.

Stephen Lomas=Q9kaY%HY[a[

20

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