The value of private equity-backed “carve out” deals, through which funds buy up an entire business line, subsidiary, or unit, has more than tripled over the past year.
The value of carve out acquisitions by private equity funds jumped threefold from £3.8bn last year to £13.4bn in the year running up to 31 August 2022, according to research from Mayer Brown.
The uptick comes as major corporates are increasingly seeking to sell off non-core assets following the economic disruption caused by Covid-19 and the war in Ukraine.
Activist investors, increasingly keen to see focus, differentiation, and improved returns, are also pushing businesses into selling off non-core assets.
The higher value of deals comes as the total number of private equity-backed carve outs jumped 76 per cent from 17 last year to 30 this year.
Carve outs allow companies a way to free up resources and cash, in the face of a looming economic downturn. Firms are then able to invest the freed-up cash in core parts of their business.
James West, a partner Mayer Brown, says: “As we head into choppier economic waters, corporates looking to sell non-core parts of their business are likely to find plenty of willing private equity buyers.”
“For private equity funds carve outs can be an attractive opportunity. Acquiring an unloved business unit from a corporate brings with it opportunity for relatively substantial turnaround if the right strategy for growth can be implemented.”
“Carve outs also enable corporates to realise value from a business unit where there may be limited options for future growth under its current ownership.”
“The nimble and flexible nature of private equity firms… gives them a significant advantage in being able to turn around underperforming businesses where they see real and significant short to medium term opportunity for improvement.”