Shaping up for selling up

Despite a relatively lacklustre 2023 deals market, Deloitte’s 2024 Global Divestiture Survey of 500 M&A decision makers, indicates that companies expect to make more divestments in the months ahead with 78% of respondents indicating that they are considering at least three divestments in the next 12-18 months, up from 41% in 2022.

What’s behind this? Dampened expectations will have been at play, but there’s also an increasing sense of maturity and divestiture-readiness emerging from a tougher deal environment. And unquestionably, these newfound healthy habits will put sellers in a better position to maximise value as the market warms up.

With interest rates anticipated to ease, continued pressure from activist shareholders, and private equity looking to invest its record capital reserves before valuations rise again, vendors should expect an uptick in buyer interest.

Being more prepared

By and large, business leaders have been more satisfied with the values their divestments generated. 65% achieved higher than expected values on their last divestment – an increase of nearly a third compared to the 2022 survey. Aside from achieving better than expected values, survey respondents are three times more likely than before to report completing divestitures faster than expected, and they are also seeing similar improvement in achieving stakeholder alignment for diligence and presale preparation.

It always pays to be a prepared seller, but especially so now. Whilst an increase in deal activity seems likely, continued cost pressures and economic and political uncertainty will ensure that prospective deals will continue to attract heightened scrutiny by boards, oversight committees and lenders. Sell-side dealmakers can expect buyers to proceed with more caution and to have their value stories robustly challenged.

Material value can be attributed to having a ready, clear and robust value story, which stands up to investor scrutiny, outlines the possibility for synergy creation (for corporate buyers), and demonstrates potential standalone value (for financial sponsors). It’s common to underestimate the time it takes to create a strong narrative, and this might explain why more than a third of survey respondents said they would prioritise the creation of a robust and defensible value proposition and track record if they could execute their last divestment again.
 

Reviewing the business portfolio more often

Regularly reviewing a business portfolio allows a more front-footed approach to deals, enabling better preparation and credible value creation opportunities especially if responding to an opportunistic approach. So, it’s reassuring that sellers are reviewing their portfolios more often: 61% are strategically evaluating their individual portfolio businesses for divestiture potential at least twice a year, up from 54% in 2022 and just 16% in 2020.

Divestment readiness is inherently more difficult when you’re not the instigator, yet disposals from opportunistic approaches have been increasing and, for Europe-based respondents, was the number one motivation for their most recent disposal. Conducting portfolio reviews more frequently and treating portfolio management as an ‘always on’ activity will put sellers in a stronger position as markets warm.
 

Using alternatives to traditional divestitures

Joint ventures (JVs), partnerships and alliances have become much more commonly considered as alternatives to traditional full divestments. Compared to the 2022 survey, the number of organisations considering the use of JVs increased significantly from 51% to 86% in 2024, for partnerships from 60% to 87%, and for strategic alliances from 62% to 89%.

As demand improves, prospective divestors should continue to think creatively and ensure that alternative divestment structures remain part of the equation as they provide some of the benefits of a sale and at speed, including access to capital, without fully surrendering control.
 

Learning from past mistakes

Looking beyond the positive developments, there are also some valuable lessons that have been learned the hard way:

• The number one reason for receiving a lower than expected value was because companies had progressed a sale without having conducted an exit or separation readiness assessment prior to engaging the market.
• The number one reason for a divestment being abandoned was ‘changes in internal strategy’, suggesting that the strategic rationale for a divestment can sometimes get overlooked. Aligning senior stakeholders with a vision for the future organisation and ensuring that divestments are informed by this strategy is essential.
• If they had a chance to execute their last divestment again, companies would invest in preparing management more extensively. A reminder that whilst you may have the best investor story on paper, ensuring that the management team are able to articulate this consistently to potential buyers is essential.

With market mood music changing, savvy companies are reviewing their portfolios now to allow time to get divestiture ready. Preparedness will include investing time to build a compelling value story and thinking creatively about the potential to use JVs, alliances and partnerships to your advantage.

We will explore strategies for maximising deal value in our ‘Getting divestitures right’ series. Contact us to receive relevant articles and invitations.

Read the Deloitte 2024 Global Divestiture Survey report.

About the Deloitte 2024 Divestures survey

_{This is Deloitte’s sixth divestiture survey. The survey was conducted between October 1, 2023 and November 8, 2023 and the data was collected from 500 individuals at private or public companies, with revenue of at least $500 million that completed at least one divestiture or sell-side transaction (spin-off, IPO, carveout, winddown, etc.) in the last 36 months.}

_{Respondents were senior director-level or above, and the survey sought to balance C-suite and Non-C-suite managers but required that respondents have a robust comprehensive understanding of the last divestiture they were involved in (i.e., were able to judge transaction-level risks, issues, decisions made). Respondents were sourced by an external survey vendor without involvement from Deloitte. Industry representation was controlled for a balanced distribution, and participation was balanced across major geographic regions (Asia-Pacific – 20%, Europe – 30%, and North America – 50%).}