2. “ Pruning non-core units on a regular basis allows
companies to reduce complexity and free up capital
for growth businesses. For the divested units, they
may be a better fit with other firms that are able to
help them achieve their full potential.”
1Why companies
divest 2How to be
successful 3EY’s approach
to divestments 4Why EY
1 2 4 8
Contents
Vikram Chakravarty
Asia-Pacific Capital
Transformation Leader
3. 1Divesting for value |
1Why companies divest
• Divestment is a natural progression, as companies get more focused
and push for growth
• It creates value and is a growing trend in Asia-Pacific
Reasons
to divest
• Non-core business
• Weak competitive position
• Unattactiveness of market
• Fund future growth
Strategic
86%used funds to invest
in future growth
Finance
• Conglomerate discount – unlocking value
• Distress situation – pay down debt
• Opportunistic sale
For
31%companies financial
triggers drove
divestment
• Focusing management attention –
currently spread thin
• Operational simplicity
• Limited synergies
Operational
Divestments can create value and other benefits
1,600 divestments in Asia-Pacific over the last five years
Examples of companies divesting to unlock value
China Property, aviation, beverages, marine services,
trading and industrial conglomerate spun off
property business
India Consumer products business spun off of their
skincare solution company
Malaysia Conglomerate with interest in plantation, property,
pharmaceutical, etc. spun off their pharma business
Singapore Food and beverage, publishing and printing
conglomerate spun off real estate business
South Korea Leading consumer electronics company spun off a
developer and supplier of inorganic materials for
electronics, energy, and environment fields
As the global economy
settles into its new growth
pattern, companies in
Asia-Pacific will need to
make informed decisions
tied to portfolio rebalancing.
Abhay Bangi
Operational Transaction
Services
EY Global Corporate
Divestment Study 2015
Source : EY Global Corporate Divestment Study 2015 – considerations for divestment - Asia-Pacific
responses, ex Japan; Capital IQ, EY analysis
4. 2 | Divesting for value
Support for
growth drivers
insufficient
Deal rushed without
considering ways to
enhance value
Poorly organized,
incomplete or
inconsistent dataroom,
resulting in excessive
buyer demands
One-off stranded
and stand-alone
costs inaccurate
Price talked-up
Actual
results below
expectations
2How to be successful
• Two-thirds of Asia-Pacific sellers enjoyed positive valuation uptick
• Wide gap between leaders and laggards
• A complex journey that requires thorough planning and astute
decision making
Potential value erosion in a divestiture
Management presentations
‘off message’ or not tuned to
specific buyer
Management
unprepared for
data demand
Stand-alone operating
model not well defined
TSAs not well
negotiated
IM fails to make
strategic case
Historical track
record unclear
Change
management
not effective
Appoint M&A
advisors
IM issued Initial offers Management
presentation
Dataroom
access
SPA
released
Final offer Exclusivity Completion
Value
IM: Information Memorandum
SPA: Sale and Purchase Agreement
TSA: Transitional Service Agreement
5. 3Divesting for value |
Sellers need to tell a strong, credible value
story and weigh the opportunity costs of
waiting too long for the right price.
Luke Pais
Asean Mergers & Acquisitions Leader
Big divergence between the best and worst performers
Mean
14%
Top quartileBottom quartile
38%
-44%
Art of divestment
“ Top quartile performers
are 60% more likely to
use strong analytical
tools than lower-
performing companies”
EY Global Corporate
Divestment Study
1. For divestments in Asia-Pacific 2010-2014. Based on % change in valuation (EV/EBITDA) from -3 months from announcement date to +3 months
Source: Capital IQ, EY Analysis
Divestiture, a primary means of optimizing
the portfolio and preserving and raising
capital value, deserves greater attention.
Joongshik Wang
Asean Corporate Finance Strategy Leader
1 Informed decision –
what to sell and
how to sell
(TSAs etc.)
2 Critical to follow
through once intent
to sell is announced
3 Understand
trade-offs between
value, speed and risk
4 Have a dedicated
team to manage
divestment
Change in seller’s valuation1
6. 4 | Divesting for value
3EY’s approach
to divestments
Comprehensive approach to complex journey covering the entire
lifecycle of the transaction
1. Portfolio review 2. Strategy and concept 3. Planning and preparation
Kick-off workshop Separation scoping
workshop
Separation planning
workshop
Identify deal perimeter
Decide on deal structure
(Trade sale vs. Carve-out vs. Spin-off)
Identify non-core business
End of preparationProject start
Entanglement
analysis
Standalone
operating
model
Financial
bridges
Operational
bridges
(Draft TSA)
• Business: sales,
marketing, customer
contracts or channels
• Operational:
manufacturing,
supply chain
• Functional: finance,
HR, IT, legal
• Replicate
• Optimize
• TSA
• Shared corporate
costs
• Standalone costs
• One-off separation
costs
• Stranded costs
• Activities
• Service levels
• Duration
• Fees
Strategy
• Define long-term high level goals
• Financial
• Commercial
• Ethical
Operating Model
• Benchmarking
• “Complete” picture
• Standalone
• Synergies
Outcomes
• Core or Non-Core
• Performing well vs. At risk
Options
• Invest to maintain or grow
• Divest to realize (outside) value
• Optimize (within existing model)
• Restructure (to design new model)
Strategy
Options
Operating
Model
Outcomes
Deliverable
Strategic
review
Separation scope
and concept
Separation
plan
Governance Model
Robustness
of value
story
Deal
structure
and timelines
Standalone
BU
capabilities
and business
services
Asset
allocation
(including.
IP or shared
technology)
Clarity &
transparency
of financial
info
Inter-BU
compensation
model
IT platform
and set up
FTE
allocation
and
divisibility
of teams
Material
contracts
agreement
Plan for standalone operations
Review of key separation dimensions
BAU: Business As Usual
7. 5Divesting for value |
The financial Vendor
Due Diligence (VDD)
is:
• Factual description
of the business
• Pro-forma separation
financials
Seller Information
Documents (SIDs)
for:
4. Investor reporting 5. Separation execution Post-closing phase
Q&A sessions
with investors
Separation execution
kick-off workshop
Follow-up
workshop
Day 1 readiness
workshop
SigningGo public, point of no return Closing
Deliver
transitional
services
and roll-off
TSAs
1 2 3
Steering committee
Decision making
Workstream
Business Operations Functional
Separation management office
Weekly
update
Separation plan
Risks & issues
Milestone tracking
1
2
3
Finalize TSA
to ensure BAU
for BU being
separated
Execution of
separation
implementation
plan
Ensuring day 1
readiness and
prepare for
post-closing
support
Finance
IT
HR
Operations
Pro-forma
financials
VDD, SIDs Business
transfer
Closing
accounts
Exit TSAs
Proactively establishing a heightened state
of readiness to divest is a best practice.
Karambir Anand
Operational Transaction Services
Tax IT
Operations
Seller‘s
M&A team
BU
management
Local BU or
country or site
management
EY team
Detailed view of business for buyers Separation management office (SMO) set-up
for business transfer
8. 6 | Divesting for value
Successful sellers use a combination of data and project management tools
EY proprietary divestment tools helping create value for sellers
Data management Project management
Managing and manipulating large quantities of data Effective project management framework
ePlaybook
• Dynamic project management
• Real time management
• Custom to-do lists
• Alerts and status reports
Data room management
• Design and management
• Gather and checking
• Preparation (gap filling)
• Q&A
CarveX
• Carve-out financial statements
• Scenario planning in offline environment
• Unlimited data capacity
• Bridge regulatory and deal financials
CarveX
DivestPro
• Step-by-step divestment guide
• Issue identification
• Templates
• Tips and tricks
DivestPro
Financial modelling
• Business planning
• Synergy modelling
• Pro forma adjustments
• Closing accounts or mechanisms
Separation planning and implementation
• Detailed separation plan
• Issue or resolution log
• Project management tools
• TSA and SLA templates
• Q&A
Leading companies view
divestments as a fundamental
part of their capital strategy,
especially to fund growth.
Paul Hammes
EY Global Divestiture Advisory Services Leader
Source: EY Global Corporate Divestment Study
9. 7Divesting for value |
Paying close attention to tax implications is
essential, as they are complex and can add
considerable value to a transaction.
Russell Aubrey
Asean Transaction Tax Leader
Portfolio review Portfolio was reviewed carefully in order to maximize
the valuation of SpinCo while maintaining RemainCo’s
strategic focus
Strategy
and concept
Decisions related to planning, operational & strategic
value drivers were made well in advance of the
IPO date
Planning and
preparation
Enhanced go-to-market strategies in 60+ countries
with no impact to pricing
Investor
reporting
Accurate estimation of one-time, stranded and stand-
alone costing
Tax There was simultaneous implementation of customized
tax structure into the business unit
Separation
execution
Company within a company created 3 months
prior to IPO
The de-layering of the organization reduced G&A
by 20% from allocated basis
“The spin-off leaves us better
positioned to focus on our core
business by unlocking the value
in SpinCo” — RemainCo CEO
Case Study: How EY helped a Big Pharma client maximize value through divestment
224
3 months pre
divestment
(Seller)
3 months post
divestment
(Seller + SpinCo)
183
20%
“We will continue serving our
customers in ways that make a
meaningful difference to their
businesses and strengthen our
position as the world leader in
animal health”— SpinCo CEO
Market Cap change for Big Pharma (USD Bn)
Source: Capital IQ, EY Analysis
10. 8 | Divesting for value
4Why EY
Our sector-focused divestiture advisory services (DAS) professionals
have served on many carve-out sales, spin-offs to existing shareholders,
IPOs and contributions to joint ventures for domestic and global clients,
including Fortune 500, private equity portfolio companies and privately
held businesses.
EY divestment value proposition
Our divestiture related thought leaderships
#1in divestiture
advisory globally*
Dedicated team
globally including
ASEAN
Global Corporate Divestment
Study 2015
A survey with 800 executives on
questions relating to portfolio
review and divestment strategies
and provides insights on how to
maximize divestment success
Roadmap to carve-out
sale success
Illustrates the critical steps to
getting a deal signed in six months
Capital Confidence Barometer
Provides a view of executives
confidence on real and sustained
economic recovery and how it
impacts their growth strategy
Exit Readiness Workshop
Illustrates the importance of exit
readiness workshops, workshops
purpose, agenda and its outputs
from each workshops
Functional specialists
Integrated
service
offering
across transaction lifecycle
Outcomes
focused
jump-start approach
Industry specialists
Business
Operational
• Supply chain
• Manufacturing
Functional
• HR
• IT
• Finance
• Financial
services
• Oil and gas
• Resources
• Consumer
goods
• Life sciences
and healthcare
*Source: Blueframe 2014
11. 9Divesting for value |
EY has buy- and sell-side experience. We carry
dedicated divestiture teams who understand
the needs of potential buyers (private equity,
strategic - public and private).
Purandar Rao
Singapore Transaction Advisory Services Leader
Select EY global divestment advisory credentials
Transaction type Countries by region Workstreams
Sample engagements
Carve-out&sale
Carve-out&tax
freespin
#ofcountries
impacted
NorthAmerica
CentralandSouth
America
Europe,
MiddleEast,India
andAfrica
Asia-Pacific
Carve-outfinancial
statements
preparation
StandAlone
one-time/TSAcosts
Operational
separationand
stand-upofNewCo
PMO
Big Pharma spin off and IPO of its animal
health unit
√ 70 3 17 37 13 √ √ √
Multinational consumer goods company spin off of
its pharmaceutical unit
√ 41 2 3 28 8 √ √ √ √
Leading BioPharma’s partial IPO of its
Nutrition unit
√ √ 59 3 26 16 14 √ √ √
Leading BioPharma’s sale of its medical
supplies unit
√ 33 5 5 14 9 √ √ √ √
Leading FMCG company’s carve-out and sale
of its pharmaceuticals business
√ 25 3 19 3 √ √ √
Imaging tech company carve –out and sale of
its healthcare IT platform
√ 50 3 10 22 15 √ √ √ √
German car manufacturer’s carve-out and
sale of its American business
√ 28 3 4 16 5 √ √ √ √
Divestiture of logistics BU from a
Fortune 500 company
√ 25 2 4 14 5 √ √ √ √
Heavy equipment manufacturer carve-out of
USD1.2 billion logistics business
√ 30 2 8 17 3 √ √ √ √
Global healthcare company’s carve-out and
tax-free spin of specialty pharma
√ 103 2 27 54 20 √ √ √
Specialty chemicals sale of its coating business
to a PE buyer
√ 15 2 1 7 5 √ √ √ √
Fortune 500 company carve-out and sale of a BU √ 25 3 2 14 6 √ √ √ √
American producer of technology-based
performance materials - carve-out and sale of 4 BUs,
pharma, fine chemicals, plastics and polymers
√ 10 1 1 5 3 √ √ √ √
Leading oil company – carve-outs and sales of
numerous BUs
√ 13 2 2 6 3 √ √ √
TSA: Transitional Service Agreement PMO: Program Management Office
