Digital Disruption Fueling Divestment Plans

EY reports the number of companies planning to complete a divestment in the next two years more than doubled to 87% from 43% in 2017.
Matthew HellerFebruary 28, 2018
Digital Disruption Fueling Divestment Plans

More than 80% of companies are planning divestments by 2020 as they confront the disruption to their business models by digital and other technologies, according to an EY report.

In its Global Corporate Divestment Study 2018, EY surveyed 1,000 executives worldwide, finding that the number of respondents planning to complete a divestment in the next two years more than doubled to 87% from 43% last year.

Almost three-quarters (74%) of respondents said technological change is directly influencing their divestment plans, up from 55% in 2017. Asked about the triggers for their most recent investment, 43% cited the need to fund new tech investments.

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“Digital disruption, transformational shifts in customer preferences, and sector convergence are forcing companies to make bets on future technology now,” Paul Hammes, EY’s global divestment leader, said in the report. “The result of this focus is a significant increase in companies divesting assets to fund digital growth strategies.”

EY said the technological drivers for divestment include cloud computing, digital technologies such as social and mobile, and 3D printing. Automated processing is driving efficiency savings in every part of the service economy.

Cloud computing, it noted, has prompted “a wholesale shift to the platform economy, where the ‘as-a-service’ model now dominates,” while 3D printing “promises to transform supply chain and logistics practices.”

According to the report, companies divesting to fund technological change are looking primarily to improve operating efficiency and address changing customer needs in their remaining businesses. “However, investment in technology that will deliver product innovation — currently a focus for only 43% of companies — may deliver greater long-term value,” EY said.

One large health-care company, for example, recently divested a non-core business unit to invest in a start-up with technologies that would increase its direct relationship with the patient, both in and out of the hospital. In less than two years, EY said, the company increased its revenues by more than 12% via cross-selling opportunities enabled by the acquisition.

More than half of respondents (56%) also said they held on to non-performing assets longer than they should have.