2022 Global Divestiture Survey
Realizing value in a fast-paced market
Despite a strong M&A market in terms of corporate divestiture volume and value, our survey shows there is still room for improvement. The good news? Successful dealmakers offer lessons on divestiture strategy. By becoming a more prepared seller, companies can improve divestiture outcomes and emerge as a more streamlined and resilient company.
Maximizing value. Minimizing disruption.
As companies gain distance from the deepest disruptions of the pandemic and continue to grapple with supply chain and labor concerns, they have good reason to review the business mix in their portfolios. Given recent economic and market changes, companies can benefit by weighing what still fits and will create value for shareholders, as well as what needs to go and will have more value under new owners.
Companies are continuing to adopt defensive measures, such as divestitures of non-core assets, to enhance their portfolios for the long term. They may be adjusting the portfolio for greater digitalization or to increase sustainability. Or they might be addressing more fundamental issues—whether each business activity supports their corporate purpose or whether it helps to build resilience for what comes next.
Market data shows the pace of corporate divestitures has significantly quickened, with the number of divestitures completed globally more than doubling from 2020 to 2021.1 In our survey, corporate leaders report they’ve done more divestiture transactions in the recent past and expect to do more in the future.
Survey responses also show major changes in the way organizations think about divestitures. The pandemic is playing a primary role in driving divestiture strategy, and eager buyers are plentiful. Companies can now prioritize speed and secured financing while allowing competitive pressure to drive price when choosing a buyer, and the valuations received in divestiture transactions have gone up markedly. Prices are getting a boost from a strong overall M&A market in which the value of global deals soared to nearly $5 trillion in 2021.
However, a relatively small group of respondents realize positive outcomes across key metrics—transaction value, speed to completion, and limited business disruption. As we explore in the report, prepared sellers can make gains across these dimensions—and emerge from the divestiture process as a streamlined and more resilient company.
Read the full report, take a deep dive into the data, and learn how your business can improve outcomes and emerge from the corporate divestiture process as a more resilient company.
About the survey
Data for this survey was collected from 500 individuals at private or public companies with revenue of at least $500 million that completed at least one divestiture in the past 36 months. Respondents were senior director-level or above, and the survey sought to balance C-suite and non-C-suite managers. Industry representation was controlled for a balanced distribution, and participation was balanced across major geographic regions (Asia, Europe, and North America). The survey was conducted from October 14 to November 12, 2021.
This is our fifth divestiture survey in the past decade, allowing us to track key trends related to strategy and execution over time. In particular, we are able to compare our most recent survey with data from the 2020 report (collected in late 2019, just before COVID-19 spread around the world), providing insights about how the pandemic has affected divestiture strategy and execution.
Corporate divestiture trends at a glance
Through the survey, we were able to identify several themes to consider when companies engage in dealmaking in 2022 and beyond. Explore a breakdown by the numbers of corporate divestiture trends in this infographic.
Enhance your corporate divestiture strategy
Corporate divestiture activity is brisk
Respondents in this year’s survey are doing significantly more corporate divestitures. Asked how many divestitures they have done in the past three years, 51% say three or more, and another 30% say two. This is a substantial change from 2020, when just 32% said three or more, and from the 2017 survey in which 14% reported three or more divestitures and a majority reported just one.
The observed increase was not unexpected. In 2020, we forecasted that because of the pandemic and challenging economic conditions, “divestitures will undoubtedly play a critical role in defensive M&A response strategies and in building resilient portfolios for the ‘next normal.’” Many see the faster pace continuing: 43% say they expect to do three or more divestitures over the next two years, up from 18% in the 2020 survey. Another 27% expect to do two divestitures, for a combined 70% who say they plan to do two or more, a significant jump from just 36% in the 2020 data.
Why the increased divestiture activity? The top reason respondents cite as a motivation for a divestiture is a change in the market landscape. And in a separate question, 79% of survey respondents say the pandemic—surely one of the largest drivers of change in the markets and in the global economy—has had a high or moderate influence on divestiture strategy.
The divestiture motivation that respondents rank second was an opportunistic approach from an interested party. This was the No. 3 response in 2020 and was not in the top three at all in 2017. The data point reinforces the sense that today there are ready buyers for divested assets—and buyers coming to sellers instead of the other way around.
Deal values are strong
With so many willing buyers, sellers are pleased with the valuations they are achieving. In this year’s survey, 41% say the value they received from their most recent divestiture was higher than expected, a big jump from 11% in the pre-pandemic 2020 survey and 20% in the 2017 survey.
A market that makes it easier to obtain a relatively high valuation for divested assets may help explain a dramatic reordering in the priorities sellers report in our survey. We asked sellers to indicate their primary determinant in choosing a buyer for their most recent divestiture:
1. Ability to execute quickly (25%)
2. Secured funding (20%)
3. Good fit for management and employees (16%)
4. Speed and certainty to close (14%)
Highest price comes in fifth, selected by just 12% as the key factor in choosing a buyer—even though it was the top answer to this same question in the 2020 data. Indeed, the order of the top five factors in the current survey is essentially the reverse of the top five two years ago.
One reason a seller may prioritize a fast execution is that some corporate divestitures are the result of larger merger transactions in which the sale of assets is dictated by regulators. In such instances, getting a speedy deal close may be paramount and allow the retained business to quickly focus on integration and synergy realization, which may be many times more accretive to shareholder value than divesting non-core components.
There are indications that a considerable number of recent corporate divestitures have required more effort than the seller might hope. This highlights the importance of taking measures so successful sellers can be well prepared, with the right divestiture planning and capabilities in place.
The one-time cost of preparing to shed a business is rising: 75% of respondents say the cost of a divestiture was 4% to 7% of the revenue of the asset sold, while just 17% say the cost was 3% or less. In our 2020 survey, by sharp contrast, most respondents indicated the one-time cost was less than 3% of revenue. Separating non-core operations to be sold is a demanding task. Many sellers may choose to execute up-front work on the business to be divested to resolve entanglements. They may also invest in rapid pre-sale value creation interventions, thus presenting a more robust business to bidders. This no doubt adds to the overall cost of a divestiture but may be helpful in realizing better valuations.
For surveyed sellers that took more time than expected on their most recent divestiture, 48% cite regulatory approvals as an important reason, up from 40% in both 2020 and 2017. Prepared sellers should be aware of the regulatory implications of operational and legal entanglements, as well as keeping up with trends in the external regulatory environment.
A meaningful share of surveyed companies are also seeing divestitures affect their remaining businesses. Asked to assess the extent of disruption to core business caused by a divestiture, 7% of respondents say it was significant and 40% say moderate.
With this mixed picture—better outcomes on valuation and timeline, concerns around disruption and costs—we analyzed the survey data to look for correlations and clustering. What emerges is evidence that companies still have plenty they can do to proactively work toward better outcomes.
Just 18% of the survey cohort believe they do well across all three key measures, achieving higher-than-expected deal values, lower operational disruption, and less time than expected to complete the divestiture. At the other end of the spectrum, 31% of companies report experiencing broadly poor outcomes (lower valuations, more disruption, longer timelines).
Prepared sellers, stronger outcomes
In addition to examining motivations and outcomes, our survey asked respondents to discuss common practices related to corporate divestitures. This provides insights into how more deliberate divestiture planning and organized execution planning may lead to better outcomes for sellers.
We asked respondents about divestiture strategy, processes, and outcomes. One result shows that companies are reviewing their business portfolios more often: 54% of respondents say they strategically evaluate individual businesses at least two times a year (including 10% who say they do this more than three times a year). This is an increase from 2020, when just 17% of respondents said they review the portfolio two or more times per year. An increase in portfolio reviews and potentially resulting opportunities may have also contributed to respondents being more optimistic about divesting assets in the next 24 months.
More frequent reviews of the business mix, part of being a prepared seller, correlated with higher deal values. Among the small group (10%) that do reviews most often, 71% also report that they achieved a higher value than expected on their last divestiture. This could indicate active reviewers are more attuned to the current market dynamics and may be able to move more quickly to take advantage of conditions most ideal for their specific divestiture.
The survey data shows a similar correlation where we asked about efforts to pursue pre-close end-state optimization in a divestiture. Among the 16% of respondents who say they put high effort into end-state optimization prior to the close of the deal, 59% report that they achieve higher-than-expected deal value.
There were other correlations in the survey data that also reinforce these ideas. Survey respondents who report challenges with a lack of strategic communication or ineffective digital tools to execute their deals tend to require more time to complete their divestitures than those who did not see these as internal challenges. Similarly, those who use transition service agreements (TSAs) more frequently to sign up a buyer also seem less likely to report disruptions to their core businesses.
Seize the opportunities that come with thoughtful divestiture planning
Even in a strong M&A environment, companies should approach divestiture planning and execution steps deliberately. Our 2022 Global Divestiture Survey shows that few companies have been able to get the best outcomes across the board, completing divestitures not just at the highest valuation but also quickly and with less disruption.
The opportunity this presents is for every company to be a prepared seller, embracing the practices that can help them achieve more successful divestiture outcomes, and—ultimately—drive long-term value for their shareholders.
If you’d like to talk more about divestiture strategy and how your organization can succeed in 2022 and beyond, let’s connect.