British businesses are sharpening their focus on longer term plans by disposing of non-essential assets at a rapid pace to offset debt taken on during the Covid pandemic, according to new figures published today.
The value of carve-out deals by UK firms surged 182 per cent over the last year to £30.8bn, up from £10.9bn in the previous year, driven by corporates selling off arms of their business that are unprofitable.
The Covid pandemic put UK firms’ balance sheets under intense strain as they have taken on high levels of debt to plug cash-flow shortfalls caused by sharp reductions in income amid restrictions on economic activity.
The average value of each carve-out deal rose substantially over the last year, up 270 per cent to £1.2bn in 2020/21 from £320m in the previous year.
Widespread corporate distress has prompted firms to laser in on profitable parts of their company and dispose of any non-performing assets to strengthen their finances.
Jeremy Cunningham, corporate partner at RPC, says: “The value of carve out deals has increased significantly during the pandemic as companies have taken strategic action to dispose of non-core businesses and assets, raise much needed capital and focus on their strengths.”
Some of the biggest disposals include the £14.2bn of UK electricity provider Western Power Distribution, a subsidiary of PPL Corporation, to National Grid and INEOS buying BP’s global acetyls and aromatics petrochemicals for £4bn.
The complex legal, operational and financial considerations in a carve-out deal often relate to separation issues, RPC said.
“Carve-out deals are often more complex than the acquisition of a stand-alone business which can narrow the potential buyer market” Cunningham added.