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Press Release

Majority of companies lose value from divestitures, research shows

Mergers and Acquisitions
Insurer Solutions

February 26, 2019

Over half of companies engaging in divestments since 2010 have lost shareholder value
  • Over 5,500 divestment deals each worth over $50m in value completed worldwide from 2010 to 2018, with a combined value of $3.9trn.
  • Fifty-four per cent of these deals underperformed market indices as measured by the study, the remaining 46% outperformed.
  • Based on share price performance, companies actively engaged in divestment deals underperformed the Global Index by an average of -2.1pp (percentage points).
  • Poor seller performance in the divestment market is in marked contrast to buyers, who saw deals outperform the market by 3.1pp.

LONDON, 26 February, 2019 — Over half of companies engaging in divestments since 2010 have lost shareholder value, according to Willis Towers Watson’s Divestment Performance Monitor (DPM), in partnership with Cass Business School. The new global database analyses the share price performance of companies selling assets, from six months prior to the divestment announcement to up to six months after the divestment has completed.

Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain, said: “Divestitures are a critical but often overlooked part of shaping a company’s business portfolio, offering real potential to achieve higher profitability from better capital allocation, improved focus on core activities and more funds to invest in and support gth. Yet our data shows sellers continuing to struggle to create shareholder value from deals, as investors punish companies whose strategies and execution they disapprove of.

“The success of those asset sales that did add value is likely to have been advanced by the sellers’ ability to exploit their unique insight of the businesses being sold. This will have put them in a far stronger position to command the highest price by targeting buyers that have the most to gain and negotiating with them from a stronger position.”

Willis Towers Watson’s insights from the divestment data since 2010, which looks at companies selling portions of a parent company to both listed companies and private equity buyers, include:

  • Sellers across the board struggling: The challenge of achieving value from sales during the last 10 years applies across all regions, deal sizes and industries.
  • Sellers can succeed:  An analysis of the study showed that the value added by the minority of successful sellers ($2trn of outperformance from 45% of sellers) marginally exceeded the underperformance of the majority that struggled ($1.9trn from 55% of sellers).  
  • The challenge when dealing with PE buyers: From 2010 to 2018, divestitures to Private Equity (PE) buyers (-3.3pp) underperformed those to corporate buyers (-2.2pp). While this can be partly explained by PE firms engaging with more  distressed sellers, which may lead to lower returns, buy-side PE deal teams also tend to have deeper,  professional transaction teams with regular deal flow, enabling them to negotiate harder. In order to optimise value and ensure buyers do not win at their expense, we believe that sellers would benefit from more thoroughly planning and preparing the business for sale.

The study also shows that many of the better performing separations have been spin-offs, which are often justified by segmenting a successful business to better demonstrate its value separately from the parent. According to Willis Towers Watson, this supports the value of pre-deal preparation and the importance  of business leaders engaging internally and externally on the rationale for the deal to clearly demonstrate the value of a division being sold and the prospects for the remaining business.

Mercereau said: “Creating value from deals is far from automatic. In difficult market conditions, how much a company can gain or lose depends heavily on taking a more thoughtful approach. Investing the right resources to perform sell-side due diligence, preparing the business for sale and constructing a clear articulation of the rationale before a sale is critical to attracting better suitors. Buyers will make stronger offers for a deal they can see will create more value and will be less able to negotiate against a seller where detailed preparation has been completed. This is especially true when dealing with PE buyers, who have considerable M&A expertise and a track record for aggressive negotiating.

“Once a divestiture candidate has been identified, it is equally important to keep managers motivated by communicating their value to the business, reinforcing a sense of opportunity connected to the divestiture, and instilling as much confidence as possible that performance will be recognised. This will have a beneficial impact across the organisation and on the success of the deal.”

Willis Towers Watson methodology

  • All analysis is conducted from the perspective of public sellers.
  • Share price performance within the semi-annual study is measured as a percentage change in share price from six months prior to the announcement date to the end of the half year of completion.
  • Only completed divestitures with a value of at least $50 million which meet the study criteria are included in this research.
  • All private equity sellers are excluded in the sample.
  • Deal data sourced from Refinitiv.

About Willis Towers Watson M&A

Willis Towers Watson’s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have particular expertise in the areas of planning, due diligence, risk transfer and post transaction integration, areas that define the success of any transaction.

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