The vast majority of company heads are considering selling at least one of their business lines by 2021, according to a survey of over 900 corporate executives worldwide by professional services firm EY.
The reason for the increasing willingness to sell is that organizations are increasingly burdened with digital expectations and, in turn, have to transform their business models, says EY. During a transaction, the favorable outcome of negotiations can be based on a well-thought-out tax strategy, the survey adds.
In the last two years, the number of company executives considering selling at least one of their businesses in the near future has almost doubled, with some 84% of respondents now considering selling. About 81% of decision-makers are encouraged to sell in order to improve operational efficiency, says EY, adding that companies have the option of using funds gained from such transactions to finance technology investments, product development, and market expansion.
The success of a planned deal is significantly influenced by the ever-changing tax environment, the survey stresses. Nearly half of the executives interviewed (45%) said they believe that tax challenges make it difficult to carry out transactions. Two-thirds (66%) of respondents said that improper handling of tax risks caused a loss in value during their most recent transaction.
"U.S. tax reform and the action plan of the Organisation for Economic Co-operation and Development (OECD) are forcing the hands of decision-makers," says Róbert Heinczinger, tax advisory partner at EY Hungary. "However, for a transaction, the entire company must be constantly ready, as it is not foreseeable when and which business line will be sold. Companies that correctly formulate and regularly review their tax strategy, develop their information and compliance systems, update their internal policies, and maintain their accounting and other business support processes, ensure they are ready for any transaction."
In many cases, Heinczinger adds, companies do not have enough resources for this, even though this can prove decisive in whether the company reaches the desired sale price or fails during negotiations.