87% M&E companies planning to divest in next 2 years: EY Global study

Media and entertainment sector faces constant change as disruptive forces continue to transform the way in which consumers and businesses interact with and consume content and data. Digital technology is evolving future business models, hence, companies that are agile and flexible will only be able to thrive. As a result, market leaders realise now is a good time to divest and fund their digital growth strategies. 

EY Global Media & Entertainment Sector recently published the ‘M&E Global Corporate Divestment Study 2018: How can divesting fuel your future growth?’, which indicates that a record number (87 per cent) of companies are planning to divest in the next two years – strikingly higher than the 33 per cent reported in the 2017 study. 

The EY Global Corporate Divestment Study focuses on how companies should approach portfolio strategy, improve divestment execution and future-proof their remaining business amid rapid technological change. The 2018 study results are based on 1,000 interviews with 900 senior corporate executives (including 40 from the M&E sector) and 100 private equity executives. 

The survey shows that most companies are facing intense pressure to evolve their business models and companies are planning for divestments to use the proceeds to fund investment in new technology. The report also shows “lessons learned” that can help make divestment strategies more successful, including “strategic and programmed portfolio review process has become an imperative,” and “effectively positioning and presenting the business for sale is crucial to extract value.” 

As new technologies power innovation, business models in the media and entertainment sector look starkly different than they did just a few years ago. Companies are reorganising their business models and more than two-third (70 per cent) of executives agree that the changing technology landscape is directly influencing their divestment plans. The challenge today’s companies face is deciding what, where and when to divest. 

The key divestment driver continues to be a business unit’s relative weakness in competitive position in its marketplace – cited by 90 per cent of companies in the latest findings, up from 57 per cent in 2017. Media and entertainment companies are confident of their future growth plans. Almost half of the companies (47 per cent) planning a divestment say they intend to use the proceeds to fund investment in new technology. Those companies divesting to fund technological change are primarily looking to improve operating efficiency (75 per cent) and address changing customer needs (80 per cent) in their remaining businesses. 

Companies that conduct portfolio reviews at least annually are twice as likely to exceed performance expectations for divesting “at the right time.” However, 65 per cent of media and entertainment companies stated they held on to assets too long. The future of portfolio reviews is a real-time process that captures the exponentially increasing amount of external data and down-time assessment of performance using advanced analytics. 

Almost all media and entertainment companies (98 per cent) struggle to understand how technology impacts the value of their businesses. Furthermore, overcoming emotional attachments to assets and admitting “failure” in one of their business units was highlighted (78 per cent) as a second major challenge in the portfolio review process. 

Sellers should avoid this inward focus by taking an outside-in view of their portfolio – understanding shifts in customer expectations, future business models and growth trajectories, as well as competitive positioning. Companies that identify emerging trends are best equipped to readjust their portfolios and recycle capital to take advantage of new growth areas. 

While most media and entertainment companies (77 per cent) prioritised securing the best price over speed of execution in their most recent divestment, achieving that expected value can be a significant challenge. 

Some highlights from the survey: 

87% of companies are planning to divest within the next two years

70% of executives consider the changing technology landscape is directly influencing their divestment plans

65% of companies hold on to assets too long when they should have divested

50% stated not presenting the business as a stand-alone business had “scared off” buyers or prompted lower bids

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