Asia-Pacific companies face portfolio rebalancing need

The report surveyed 250 executives across the region from private and public companies, most with revenues over $1 billion, on their evolving strategic goals and the forces driving portfolio reviews.

Five key external forces are driving this need for portfolio rebalancing. First, navigating geopolitical tensions cause dislocation of marketplaces, supply chains, and trade partners. Second, capital efficiency regulation require companies to disclose capital returns below the threshold.

Third, the rise of investor activism in Asia is putting pressure on companies to address underperforming assets and divest non-core businesses. Fourth, environmental, social, and governance (ESG) criteria and the road to net-zero trigger boards and executives to undertake deals and divestment to transition to a green portfolio. Fifth is private equity's increasing role as an investor and potential partner in asset portfolio optimisation choices.

The survey found that active portfolio management is becoming pivotal for how executives and boards are adjusting to these external forces. The report advocates a move towards an “active portfolio management mindset”, focused on building resilience and transformative growth through capitalising on growth opportunities and synergies as and when they arise.

Strategy, risk, and transactions leader of Deloitte Asia-Pacific Jiak See 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.”

According to the research, more than half of the 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, including shaping the criteria by which they assess their portfolios and rebalancing activities.

The impact of ESG on individual companies varies widely by sector and their market position. Companies need to be alert both to the risks and the growth and value opportunities that a growing focus on ESG concerns brings, and the survey suggests that sellers with a clear ESG story are six times more likely to receive a higher-than-expected deal value.

Almost all respondents are now considering alternative exit strategies alongside conventional divestment with private capital, and private equity, to the fore. Record levels of dry powder mean that private equity buyers are hungry for investment opportunities in Asia-Pacific, though sellers need to adapt their approach, engaging potential buyers earlier in the process and being open to a wider range of deal structures.

Among the business leaders surveyed, the vast majority (79 per cent) of executives expect to make two or more divestments in the next 18 months. Interestingly, 95 per cent have abandoned a sale in the last 12 months, suggesting a need for businesses to do more to be divestment ready.

“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 mergers and acquisitions an enabler of purpose as well as profit goals,” added David Hill, CEO of Deloitte Asia-Pacific.

Based on the analysis of the report findings, businesses are encouraged to take the following high-impact actions. Business should adopt an ‘always-on’ mindset for portfolio reviews, dedicating resources and board-level oversight to align assets with the business’s strategic direction. They should also assess portfolios on their strategic fit, value creation potential and resilience. Companies should apply this tripartite “advantaged portfolio” review frequently and comprehensively.

In addition, businesses are encouraged to maximise value from poor-fitting assets by developing a compelling story and asset track record. They can also integrate ESG as a central component of portfolio assessment and rebalancing. They carefully consider tax implications and opportunities in portfolio rebalancing transactions across the Asia-Pacific region.

Muralidhar M.S.K., strategy, risk, and transactions regional managing partner of Deloitte Southeast Asia, said that 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," he said. "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.”