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How do companies avoid leaving value on the table in “The New Normal” environment?




Michel Driessen, Ernst & Young

As companies attempt to navigate challenging market conditions, the typical approach to divestments has been to “wait and see”. This is clearly evidenced in the decline in number of divestments that have been announced in 2012 Vs 2011. The recent Ernst and Young Global Divestment Study finds that many companies take heed of the “wait and see” approach and continue to use divestments primarily as a short term tactical tool to raise cash or pay down debt.

gbafr-graph1The Ernst and Young Study suggests that companies may be missing out on opportunities by delaying divestments. Among respondents, 77% intended to accelerate divestment plans over the next two years and 46% are in the process of divesting or planning a divestment. Given the prolonged period of low growth forecasted, companies are recognising in real terms what economists refer to as “The New Normal”. In this environment, divestments can become more of a strategic tool that drives value for the company. Companies that do not subscribe to “The New Normal” and continue to take the “wait and see” approach are likely to struggle. Divesting effectively and efficiently in today’s economic environment is no longer optional and needs to become an active part of a companies’ value creation strategy.

So, the exam question posed is how do companies avoid leaving value on the table in “The New Normal” environment? The Ernst and Young Study which is a study based on a survey of 567 corporate executives across the globe has attempted to answer this question through looking at value with respect to two measures – value expectation and speed expectation. The study’s empirical analysis shows that companies that adopt the following five leading practices are closing deals ahead of schedule and achieving higher prices than expected.

Firstly,companies need to understand the importance of regular and structured portfolio management and how capital should be allocated across their business. Scheduling regular reviews of the asset pool can assist with better understanding of opportunities that may be present, allowing divestments to be employed as a forward-thinking strategic tool rather than as a reactive move. The study implies that the main drivers for divestment are often the impact on earnings per share (EPS) and financial benchmarks such as return on capital employed (ROCE). Whilst these are solid foundations for assessing the potential impact of a divestment, there needs to be further work embedded in the portfolio assessment process to more closely align with an overall strategy for shaping the future of a business. Seeking immediate results oriented around financial measures may serve to blinker the path to optimising shareholder value or focussing on core business. The study finds that 55% of high performers have a structured process and reviewed their portfolio regularly.

Secondly, the study finds that sellers need to consider a full range of potential buyers by widening the search for prospective buyers to ensure every angle of opportunity is explored prior to advancing a deal. Whilst there may be a sensible reluctance to invest in an exhaustive and costly process, there are some simple steps that, when embedded in the core of a divestment strategy, can enable companies to shape deals based on the most appealing factors to the relevant buyers. For example, seeking out cross-border opportunities and tailoring marketing collateral and transaction information for specific buyers can greatly enhance asset valuation.

The third leading practice, linked to this holistic view of the buying environment, is the idea that companies should invest in articulating a compelling and well-founded growth story for potential buyers. Investment in due diligence materials and analysis for each of the buyers, development of an M&A plan for the asset and identification of upsides and potential synergy can be extremely effective; cumulatively, they can enhance a sellers’ negotiating position and provides buyers with confidence, both of which go a long way towards increasing deal value. The study found that only 50% of respondents carried out these activities.

The fourth leading practice identified is to prepare rigorously for the divestment process. Ensuring the right focus on speed of execution and having flexibility to manage a myriad of buyers whilst still being in control of the process is critical to the success of a divestment. Additionally, investing resources and time to enhance the value story through strong operational performance and synergy opportunities for potential buyers is imperative to deal success. The study found that sellers who prioritise value place more emphasis on pursuing multiple divestment options in parallel and on performance improvement.

Last but not least is understanding the importance of separation planning.56% of respondents said that creating a separation roadmap has become more complex over the past two to three years. Companies need to consider the following: interdependencies between the carved out entity and the remaining business, additional recurring costs required for the standalone carved out entity, stranded cost implications for the seller and one off costs to implement the separation plan. Globalisation and efforts to streamline back office and IT infrastructure and support through the use of shared service centres and outsourcing contracts are also making divestments increasingly complex.Plans require clear exit objectives, specific end dates and absolute clarity over scope, length and the costs of Transitional Service Agreements (TSA).

By recognising the seismic shift in the rationale for making divestments, companies should take an inward look at their operational practice as well as their asset portfolio itself to ask blunt questions of the strategy: is portfolio management market-leading, has the buying market been adequately interrogated, is there a compelling growth story tied to an asset and is there confidence in the preparation and execution process? Tying these aspects together can help meet shareholder expectations at the same time as realising maximum value from assets. Divesting effectively and efficiently has always been an option to build value; in “The New Normal” economic environment, ensuring a divestment is strategically effective is no longer optional.

Selected Comments
‘In a difficult stock market environment in which returns are very low, companies need to be more focussed than ever on ensuring that their strategy is absolutely clear and communicated properly to shareholders.’ – The head of a European investment bank.

‘Prospective buyers may not be aware of the advantages of a local business environment. Presenting that information to them or bringing them into the country to meet government agencies can be a powerful lever to keep the buyer interested and enhance the value of the asset.’ – Executive at a technology company.

‘It pays dividends to do some preparation work a year or two ahead of a potential divestment because it enables you to get the timing right. Doing some legwork around carve-out financials, or thinking about the business as a standalone entity makes it easier to move forward with the transaction once you decide that now is the right time to invest.’ Executive at an industrial products company.

‘In every transaction we have done, dealing with IT separation issues has been among the most challenging aspects. You need to negotiate new license agreements with the IT provider as well as addressing separation and security issues. One of the most important lessons for us has been to think about IT issues earlier in the process.’ – Executive from the aerospace industry.





Reuters Events Launch Global Investment Summit Online Edition Uniting Institutional Investors, Asset Owners & Financial Institutions



Reuters Events – today announced the agenda for their Global Investment Summit (Dec 3rd -4th). The 2-day strategic summit has been reimagined in the era of social distancing and will be broadcast free of charge to the public.

This Summit, with a diverse range of international voices and anchored by Reuters News-led sessions, is the only place for institutional investors, asset owners and financial institutions to come to terms with the events of 2020.

Click for more information and for complimentary registration to the online edition

The Energy Transition team report an industry leading speaker faculty for 2020, including:

  • Eileen Murray, Chair, Finra
  • Philip Lane, Chief Economist, European Central Bank
  • Gregory Davis, Chief Investment Officer, Vanguard
  • Hanneke Smits, CEO, BNY Mellon Investment Management
  • Pascal Blanque, Chief Investment Officer, Amundi
  • Desiree Fixler, Group Chief Sustainability Officer, DWS
  • Joe Lubin, CEO, Consensys
  • Bahren Shaari, CEO, Bank of Singapore
  • Mark Machin, CEO, Canada Pension Plan Investment Board

The agenda released by Reuters Events Investment is both ambitious and comprehensive, and will cover four key themes: Market Outlook, Asset Management Strategies, Industry Deep-Dives and the Future of Investment.

View the full agenda here

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Halliburton & Baker Hughes CEO’s join Reuters Events: Energy Transition 2020



Reuters Events – today announced that CEO’s of two of the world’s leading energy service companies, Halliburton and Baker Hughes, will join the speaker faculties for their flagship Energy Transition Summit.

The event will explore the creation of the future energy ecosystem and offer companies, from across the asset spectrum, a definitive guide to their net-zero strategies. The alignment of the two biggest O&G global service companies, Halliburton and Baker Hughes, represents a significant step in the transition to low-carbon energy

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

Alongside their CEO speaker representation, Halliburton join as Platinum sponsors of the North American edition. Baker Hughes join as gold sponsors for the European edition of the flagship energy transition program.

The Energy Transition team report an industry leading speaker faculty for 2020, including:

  • Lorenzo Simonelli, Chairman & CEO, Baker Hughes
  • Jeff Miller, CEO & President, Jeff Miller
  • Tristan Grimbert, CEO, EDF Renewables
  • John Pettigrew, Chief Executive, National Grid
  • Pratima Rangarajan, CEO, OGCI Climate Investments
  • Alex Schneiter, CEO & President, Lundin Energy
  • Gretchen Watkins, President, Shell Oil Company
  • Calvin Butler Jr., CEO, Exelon Utilities
  • Francis Fannon, Assistant Secretary ERB, S. Department of State
  • David Lawler, Chairman & President, bp America
  • Andreas Schierenbeck, CEO, Uniper

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

Governance & Cooperation – Does the energy transition face a ‘governance deficit’? To understand how the energy transition will develop over the next decade, it is crucial to understand the driving governing forces behind it. Will the Green Deal provide the first domino, how can we ensure progress in the shadow of Aberdeen and ensure that we translate targets into action?

Financing Energy Transition – We must address the elephant in the room; who is going to pay for it all? An understanding of where the funds are likely to come from is key to staking claim to the infrastructural projects that will redefine the modern world in the 21st century.

New Energy Infrastructure – Low-carbon energy supply and consumption will need a radical overhaul of infrastructure. As well as revamping the old, we’ll need entirely new assets and new systems of energy delivery. It’s an unprecedented opportunity with estimated spending at $70 trillion over the next decade. Knowing which technologies are ready to be scaled first is the key to understanding opportunity

Business Model Innovation – Who will provide leadership through the age of transition and how do we want our future energy system to look? Speed and timing will be crucial if you are to stay on the right side of the transition. Join us in setting business led, evidence based, targets as industry drives towards net-zero

More information on the Europe and North America editions can be found below. Registration for the LIVE stream is free.

At Reuters Events, we’re committed to tackling the Energy Transition head on; to shed light on the defining issue of our time and help energy companies meet a uniquely difficult challenge. That is, to be both an energy company of today, and the energy companies of tomorrow. In a period that will be defined by uncertainty we can, together, lighten the way forward.” – Owen Rolt, Head of Energy Transition, Reuters Events


Owen Rolt

Head of Energy Transition

Reuters Events

UK: +44 (0) 207 375 7596

E: [email protected]

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COVID-19 is changing people’s preferences when it comes to BTL investments



COVID-19 is changing people’s preferences when it comes to BTL investments 1

By Jamie Johnson, CEO of FJP Investment

Throughout 2020, investors have had to navigate increasingly treacherous and volatile market conditions as a consequence of the COVID-19 pandemic. No country has been immune to the coronavirus outbreak, particularly here in the UK.

Yet even as the country enters another phased lockdown of sorts, demand for UK property has remained strong. After a brief period of suppressed demand after initial lockdown measures were introduced in late March, the UK’s implementation of the stamp duty land tax (SDLT) holiday triggered a rush in demand for bricks and mortar. As a result, both house prices and transactional activity is rising.

With this new surge in demand resulting in an 18-year-high of UK house price growth, according to the Royal Institute of Charted Surveyors, buy-to-let (BTL) investments have also substantially increased in popularity.

It’s easy to understand why. BTL investments offer landlords both long-term capital growth and regular returns in the form of rental payments. And now, as the SDLT holiday deadline beckons closer, investors keen on taking advantage of the comparative discounts on offer must act quickly.

My advice to those considering a BTL investment in the UK is to understand and appreciate the longstanding market changes that have been brought about by COVID-19. Traditional BTL hotspots are being challenged by a rise in tenant demand for real estate in up-and-coming cities and regions.

For example, the COVID-19 pandemic has resulted in the majority of the workforce working remotely from home. Recent data from property listing site Rightmove makes clear the shift in demand away from central London and towards less densely populated regions; with areas like Cambridge and Oxford seeing 76% and 64% more rental searches respectively and searches in areas like Earl’s Court dropping by 40%.

This is the clear result of previously London-based professionals realising the benefits of working from home. As businesses identify the financial drawbacks and COVID contagion risks of having all their staff physically present five days a week, employers will seek out smaller commercial workspaces.

At the same time, we are also seeing workers looking to rent larger, cheaper properties that might be further away from their office. This is due to the fact that they are unlikely to need to commute every working day to their office, even once the COVID-19 outbreak has been contained.

But, where exactly are the best larger, cheaper properties to be found? Where are the UK’s emerging BTL hotspots that need to be on the radar of prospective investors? I explore these pertinent questions below.

Liverpool life

Those who have been closely following the UK’s housing market will know just how primed Liverpool is for BTL investment. As a key recipient of the UK Government’s Northern Powerhouse funding, and with massive developments like Liverpool Waters and Wirral Waters soon to be completed, the city’s housing supply is ready to meet the demands of those taking part in the aforementioned London professional exodus.

With Liverpool constantly ranking No.1 in rankings of UK cities for BTL investment, it’s evident why investors would be keen on completing purchases of Liverpool property before the end of the SDLT holiday. Though even after the SDLT holiday ends, there’re still plenty of reasons to be optimistic about Liverpudlian BTL investment. Prime Minister Boris Johnson’s government is firmly committed to ‘levelling up’ the North of England through regional regeneration, and planned high speed rail connections between Liverpool and other northern cities will only add to the investment potential of the city.

Leeds living

Although Liverpool boasts the highest rental yields for BTL landlords in real terms, Leeds was recently named the most profitable city to become a landlord in the whole of the UK by CIA landlord. By evaluating numerous metrics; including mortgage costs, average rent, average monthly landlord costs and average property prices, they determined that Leeds was the best city for potential buyers to make their first foray into BTL investment.

And, looking at recent trends, it’s easy to see why. Leeds may benefit more from the London exodus than other cities due to its unique position of being a brain gain city’, i.e. one where more students remain after graduation than move away. As a result, it boasts the largest financial services sector in the nation after London, making it an ideal locale for employers in the financial services sector who are seeking cheaper commercial rent outside of London; likely bringing investment and employees with them.

With its strong urban economy likely to be bolstered by its designation as a ‘Northern Powerhouse’ leading business hub, Leeds is ideally positioned for BTL investment over the long-term.

Cardiff’s regeneration

And finally, the capital of Wales brings much to the table when deciding between different BTL investment destinations. With a metropolitan area population of over 1.1 million residents, forecasted to grow by 20% by 2035, demand for property in the city is set to rapidly increase over the next decade. Those able to capitalise on this population growth will be able to access considerable long-term investment opportunities – as recent reports suggest.

Thankfully, it’s unlikely that there’ll be any shortage of housing supply in Cardiff for BTL investors to invest in. Cardiff Bay has emerged as Europe’s largest waterfront development, and the upcoming Central Quay and £500m coastal developments will assist in attracting further investment into the city.

BTL remains a sound investment opportunity

COVID-19 has made evident just how resilient British real estate is as an investment asset. By offering the best of both worlds, namely long-term capital growth and regular rental returns, BTL has successfully remained an attractive and popular investment choice. And, with demand for housing still outstripping supply, the market need for rental accommodation looks set to only grow.

COVID-19 has permanently changed the UK’s housing market and, as explained above, new BTL hotspots are surely due to emerge over the next year. With renters seeking out larger homes in cheaper areas, flexible working patterns will forever change the landscape of the UK’s residential real estate market, and those able to capitalise on it may benefit hugely as a result.

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