Companies across Asia Pacific face urgent need for portfolio rebalancing; 79% of executives expect to make two or more divestments in the next 18 months
- 59% of corporates are now assessing their portfolio performance at least twice a year, up from 46% in 2022
- 95% of business executives surveyed have abandoned a sale in the last 12 to 18 months
- 99% of respondents are considering at least one alternative exit strategy compared to conventional outright sale
52% of respondents report that ESG factors were frequently discussed in their most recent divestiture
National, 18 July 2024: Deloitte’s Asia Pacific report, ‘Rebalancing your portfolio to fuel growth’ highlights an urgent need for companies across Asia Pacific to increase scrutiny of their portfolio holdings as they seek to rebalance for growth opportunities and divest assets that no longer fit their strategy.
The report surveyed 250 executives across the Asia Pacific region from private and public companies, most with revenues over US$1bn, on their evolving strategic goals and the forces driving portfolio reviews.
Five key external forces are driving this need for portfolio rebalancing:
- Navigating geo-political tensions causing dislocation of marketplaces, supply chains and trade partners
- Capital efficiency regulation (Japan, Korea and likely the rest of Asia) requiring companies to disclose capital returns below the threshold
- The rise of investor activism in Asia putting pressure on companies to address underperforming assets and divest non-core businesses
- ESG and the road to net zero triggering boards and executives to undertake deals and divestments to transition to a “green portfolio”
Private equity’s increasing role as an investor and potential partner in asset portfolio optimisation choices
The survey found that active portfolio management is becoming pivotal for how executives and boards are adjusting to these external forces. The report advocates a move towards an “active portfolio management mindset”, focused on building resilience and transformative growth through capitalising on growth opportunities and synergies as and when they arise.
“Companies today must evaluate their portfolio holdings and strategically deploy capital to the most promising opportunities to optimise returns and achieve transformative growth. An active portfolio management strategy aligned with the broader corporate strategy, harnessing intra- company synergies, ensuring resilience with a strong ESG quotient is essential for building a successful and competitive portfolio.”
- Rohit Mahajan, Partner, End-to-end M&A Leader, Deloitte India
ESG is a critical deal-value driver
According to the research, more than half (52%) of the survey respondents reported that ESG considerations were frequently discussed during their most recent divestiture. ESG factors now play a central role in companies’ strategic decision making, including shaping the criteria by which they assess their portfolios and rebalancing activities.
The impact of ESG on individual companies varies widely by sector and their market position. Companies need to be alert both to the risks (headwinds) and the growth and value opportunities (tailwinds) that a growing focus on ESG concerns brings, and the survey suggests that sellers with a clear ESG story are six times more likely to receive a higher-than-expected deal value.
"The forces reshaping the global economy are profoundly impacting companies across Asia Pacific. Whether it's geopolitical tensions, sustainability imperatives, or investor pressures, businesses must be proactive in rebalancing their portfolios to remain competitive and divestment ready. Deloitte's report underlines the need for a more dynamic portfolio review process that aligns with businesses’ strategic vision for long-term growth and value creation.”
- Jiak See Ng, Deloitte Asia Pacific’s Strategy, Risk and Transactions Leader
Alternative exits grow in importance
Almost all respondents are now considering alternative exit strategies alongside conventional divestment with private capital, and private equity, to the fore. Record levels of dry powder mean that private equity buyers are hungry for investment opportunities in Asia Pacific, though sellers need to adapt their approach, engaging potential buyers earlier in the process and being open to a wider range of deal structures.
Five key actions for businesses to adopt
Among the business leaders surveyed, the vast majority (79%) executives expect to make two or more divestments in the next 18 months. Interestingly, 95% have abandoned a sale in the last 12 months, suggesting a need for businesses to do more to be divestment ready.
“In an era of exponential technology and a heightened focus on ESG, active portfolio management will be one of the keys to corporate success. We will increasingly see acquisitions and divestments driven by a desire to accelerate decarbonisation journeys and/or to acquire advanced technologies, making M&A an enabler of purpose as well as profit goals.”
- David Hill, Deloitte Asia Pacific’s CEO
Based on the analysis of the report findings, businesses are encouraged to take the following high-impact actions:
- Adopt an ‘always-on’ mindset for portfolio reviews, dedicating resources, and board-level oversight to align assets with the business’s strategic direction
- Assess portfolios on their strategic fit, value creation potential and resilience. Companies should apply this tripartite “advantaged portfolio” review frequently and comprehensively
- Maximise value from poor-fitting assets by developing a compelling story and asset track record
- Integrate ESG as a central component of portfolio assessment and rebalancing
Carefully consider tax implications and opportunities in portfolio rebalancing transactions across the Asia Pacific region
To access the full report and learn more about the findings, please visit: https://www.deloitte.com/global/en/offices/apac/perspectives/portfolio-rebalancing.html
Methodology
Between 21 March and 5 April 2024, a Deloitte survey conducted by OnResearch, a market research firm, polled 250 executives who had been part of a divestiture within the preceding 36 months to gauge their expectations on divestiture activity in the upcoming 12–18 months, as well as their experiences with recent divestitures. All survey participants work either for private or public companies with revenues in excess of US$500m. More than half (55%) of respondents represented firms with more than US$1bn in revenue. The participants hold senior ranks (senior director or above at the corporations). Most of the respondents (80%) sit within the C-suite. Respondents’ companies are headquartered in eight Asia Pacific countries/regions (Australia, New Zealand, Japan, Korea, China, Taiwan, India and Southeast Asia) and each country/region is represented by a statistically viable sample of responses.
About Deloitte
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Deloitte India
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Email: chakravortym@deloitte.com