A recent report from Deloitte showed that more companies are using divestitures of assets or business units as part of their core strategies rather than just a way to improve finances.
“Portfolio assessment and divestitures that might have been necessary to keep the lights on in recent years can now be more strategic and focused,” said Andy Wilson, partner, M&A Services for Deloitte & Touche LLP in the report.
According to the report, global and U.S. divestiture volumes were down significantly in 2012. U.S. volume drove that decline, down 14.3 percent for the nine months ending September 2012. The decline may be due to strengthening balance sheets, reducing the need to raise money compared with 2011.
More than 80 percent of respondents to the Deloitte survey said that getting rid of non-core assets was why they divested; 37 percent selected financing needs as one of the two most important reasons to divest, which is down from previous surveys.
About 72 percent of executives said they expected to attempt divestitures in the next 24 months, with, not surprisingly, large companies leading the way.
Among those companies that divested non-core assets, the most common reasons to sell were concerns over growth and product fit.
Why do sellers choose a particular buyer? In the report, highest price came out on top, with roughly three-quarters of respondents placing it in the top two factors.
Speed and certainty of deal closure came in next, followed by good fit for management/employees, noted by just 30 percent of respondents.
Sustaining customer/supplier relationships, whether the buyer is a competitor and the ease of transition fell in the bottom.
The top three buyer preferences were domestic corporate buyers (i.e., strategic buyers in the U.S.), cross-border corporate buyers and U.S.-based private equity firms.
As Reed Anderson wrote recently in MDM: “Valuations are just a part of the picture. They are quantifiable, and therefore easy to define and compare. But a seller’s decision on who to sell to is not always based solely on price. Other factors exist that are important but harder to define.” (Read more in his article, What’s Your Business Worth? It Depends)
Read the full Deloitte report for more trends in divestitures.
