Divestments fail to add value for six consecutive years
The majority of companies that sold portions of their business last year lost shareholder value, meaning that divestments have failed to add value for six consecutive years.
Six out of ten companies that divested part of their business continued to struggle to add value, according to Willis Towers Watsons Divestment Performance Monitor.
Based on share price performance, companies actively engaged in divestment deals in 2019 underperformed the Global Index by an average of -6.3 percentage points.
The performance of divestitures in the second half of last year was negative performing -6.1 per cent lower than the index. This was an improvement on the first six months of the year which was down 7.1 per cent.
The Divestment Performance Monitor shows that acquirers of divested assets found the second half of the year much more challenging and underperformed by -12.7 percentage points.
Deal volume in the second half of 2019 (320) was high compared to the first six months of the year (251) due to a significant upsurge in deals in both Europe and Asia Pacific.
Despite an increase in activity, the total number of deals completed in 2019 (571) is a record low since 2010.
“During the past 10 years, in the wake of the financial crisis, we have seen that divesting assets has been challenging for many companies in terms of their share price performance,” said Jana Mercereau, M&A practice leader for Great Britain at Willis Towers Watson.
“However, even in the most difficult years, over 40% of companies have still managed to add shareholder value following a divestment. These companies have understood the time, complexity and cost involved – from implementing thorough due diligence to navigating often overlooked people issues – that allow sellers to approach a deal from a position of strength and command the highest price for the asset.”
Mercereau added: “Despite the dip in deal volume, the uncertainty of tariffs, geopolitical concerns and shareholder pressure, companies will continue to divest, driven by the need to streamline their operating models in order to pursue new growth opportunities.”
“At the same time of highlighting the scale of the challenge companies face in order to divest well in such difficult conditions, the data also point to where sellers are successfully bucking the negative global trend. A disciplined and rigorous approach to the complex separation process will help to attract better buyers, position the remaining business for future growth and drive shareholder value.”