It’s time to reshape your company’s portfolio

Melissa Palmer Consumer Markets Assurance Leader, PwC US March 11, 2021

The COVID-19 crisis has propelled changes across many aspects of doing business. More than ever, companies are accelerating efforts to rethink strategies, reconfigure global supply chains, increase investments in technology and adapt products and services to keep up with the latest in consumer behavior. These changes and other residual effects of the pandemic will reshape the way companies and investors evaluate their portfolios in the months ahead. They’ll also prompt CEOs to raise important questions.  

  • What’s our portfolio’s sweet spot? And how will broader market and industry changes impact customer demands?
  • Could the crisis open opportunities to strengthen our portfolio through acquisitions or divestments
  • Are we looking through a capabilities-driven lens, considering acquisitions that would help us build what we’ll need in the future. Is it time to get rid of businesses that no longer fit?
  • Do we need to sell parts of our portfolio to strengthen our cash flow? And if so, what should we sell that we won’t regret later?

These questions aren’t new, but the current crisis increases their urgency. From my years of experience working with consumer markets companies, I believe the pandemic will continue to bring changes to the way people shop, as well as who they choose to buy from, well after the crisis. Increasingly, customer decisions will rest on brands that value wellness, consider impacts on the environment, rethink how they manage their workforce, and build trust with customers and employees. 

Companies have long tackled these topics, but the pandemic magnified these social and environmental challenges — and this awareness will likely be an impetus for companies to rethink their growth prospects. 

As your company looks to optimize its portfolio, focus on core capabilities and where the business can win. This will require you to be strategic and think ahead despite persistent uncertainty. It will also involve asking these key questions:

  • Which capabilities allow my company to deliver value better than anyone else? Think about the ways companies like Amazon, IKEA and Tesla differentiate themselves in the market. 
  • Certain areas of my company’s portfolio are performing well financially, but do they fit with our core capabilities? When times are good, companies may have little reason to exit assets so long as they can generate a reasonable return. But when times are hard, companies with portfolios that aren’t aligned with their core capabilities can suffer.

To be sure, capability fit isn’t enough to justify an acquisition. One of the more interesting deals that have emerged involved mall operators acquiring a long-established yet troubled retail brand. This transaction underscores just how resourceful and creative companies have become during times of crisis while continuing to focus on their strengths. 

When evaluating an acquisition, other considerations should include:

  • Making sure the deal aligns with your company’s corporate strategy.
  • Planning for synergy capture that’s clearly articulated and supported.
  • Identifying the transaction’s risks and developing a plan to manage them.

By thoughtfully addressing these questions well before due diligence is completed, you can create value across portfolios. Times are uncertain, and the economic outlook for virtually every industry will continue to shift. This shouldn’t discourage companies from taking an objective look at capabilities required for success, the business units they currently own, what’s worth buying and what will likely perform better under a different owner. 

If anything, the time is now to optimize your portfolio and to create opportunities to grow.

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