Covid crisis driving an increasing need for active corporate portfolio management

With corporates in a number of sectors beginning to look ahead and return to growth strategies, there is a growing need for rigorous prioritisation.  With limited management bandwidth and a need for capital preservation, boards and management teams must focus on businesses that will deliver a return in the short term.

No matter how well the impact of the crisis has been managed, businesses will reemerge with previously unforeseen challenges, whether that be a fundamental shift in end markets or reduced long term demand or a need to recover lost ground sustained though lock down.  In addition, with the heightened risk of recession looming in a number of economies, balance sheets must be shored up to ensure they can withstand further economic challenges in the short term.

What we are seeing in the market is a proactive approach being taken by many corporates to identify the future stars in the portfolio.  Similarly, it's increasingly clear that businesses which are not fully aligned with corporate strategy are being restructured or ear-marked for potential disposal.

However, with valuations remaining depressed, debt markets still restricted and an increased level of buyer cautiousness, now is not the time to sell a business unless funds are required to raise liquidity.

While it is clear it is not a sellers market, vendors want to progress where they can and do not want to lose value by leaving businesses unloved until the M&A markets return. 

Where disposals are not required to raise liquidity, it is more advisable to assess and execute performance improvement opportunities that may exist within non-core businesses, ensure the industry logic for the business remains sound and undergo thorough exit readiness preparation.  These actions should not only improve business performance and potential value on disposal but will also increase the likelihood of a successful sale when the market does return.