A new Deloitte Asia Pacific report underscores the urgent need for companies across the region to scrutinize their portfolio holdings more closely. This rebalancing aims to capitalize on growth opportunities and divest assets that no longer align with strategic goals. The report, which surveyed 250 executives from private and public companies in the Asia Pacific, including Southeast Asia, reveals that most of these companies have revenues exceeding US$1 billion. It explores their evolving strategic goals and the external forces driving portfolio reviews.
Five key external forces necessitate this portfolio rebalancing:
- Navigating Geo-political Tensions: These tensions cause dislocations in marketplaces, supply chains, and trade partners.
- Capital Efficiency Regulation: Countries like Japan and Korea (with others in Asia likely to follow) require companies to disclose capital returns below the threshold.
- Rise of Investor Activism: Increasing pressure on companies to address underperforming assets and divest non-core businesses.
- ESG and the Road to Net Zero: Prompting boards and executives to undertake deals and divestments to transition to a “green portfolio.”
- Private Equity’s Growing Role: Acting as an investor and potential partner in asset portfolio optimization choices.
The survey indicates that active portfolio management is crucial for executives and boards to adapt to these external forces. The report advocates adopting an “active portfolio management mindset,” focusing on resilience and transformative growth by seizing growth opportunities and synergies as they arise.
Commenting on the report Jiak See NG, Deloitte Asia Pacific’s Strategy, Risk and Transactions Leader said, “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.”
ESG: A Critical Deal-Value Driver
According to the research, over half (52%) of 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, influencing how they assess and rebalance their portfolios.
The impact of ESG on individual companies varies widely by sector and market position. Companies need to be vigilant about both the risks (headwinds) and the growth and value opportunities (tailwinds) that increased focus on ESG concerns brings. The survey suggests that sellers with a clear ESG narrative are six times more likely to achieve a higher-than-expected deal value.
The Growing Importance of Alternative Exits
Nearly all respondents are now considering alternative exit strategies alongside conventional divestments, with private capital and private equity leading the way. Record levels of dry powder mean that private equity buyers are eager for investment opportunities in Asia Pacific. However, sellers need to adapt their approach by engaging potential buyers earlier in the process and being open to a wider range of deal structures.
Five Key Actions for Businesses to Adopt
The survey found that the vast majority (79%) of executives expect to make two or more divestments in the next 18 months. Interestingly, 95% have abandoned a sale in the past 12 months, highlighting the need for businesses to be better prepared for divestments.
“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,” added 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: Dedicate resources and board-level oversight to continuously align assets with the business’s strategic direction.
- Assess Portfolios on Strategic Fit, Value Creation Potential, and Resilience: Apply this tripartite “advantaged portfolio” review frequently and comprehensively.
- Maximize Value from Poor-Fitting Assets: Develop a compelling story and asset track record to enhance value.
- Integrate ESG as a Central Component: Make ESG a key part of portfolio assessment and rebalancing.
- Consider Tax Implications and Opportunities: Carefully evaluate tax considerations in portfolio rebalancing transactions across the Asia Pacific region.
Muralidhar M.S.K., Deloitte Southeast Asia’s Strategy, Risk & Transactions Regional Managing Partner, said, “Apart from being a good corporate practice, active portfolio management is a valuable strategy for companies to address new regulatory and investor pressures for resiliency. In Singapore, for example, listed companies that have rebalanced their capital structures in recent years have outperformed the market. Companies should therefore stay nimble and ensure that their assets are aligned with their overall strategic direction. If they are not, companies should be willing and able to move quickly to divest or engage with partners who can help them maximise value for shareholders and achieve their strategic objectives.”
To access the full report and learn more about the findings, please visit Deloitte’s website.
