Executives to Pursue More Divestitures in 2013 to Achieve Longer-Term Growth Strategies According to Deloitte Survey Domestic corporate buyers lead the pack in divestiture deal activity
NEW YORK, Jan. 23, 2013 /PRNewswire/ -- Divestitures are being driven less by executives responding to financing needs and market changes, and increasingly driven by their companies' strategic growth goals which render certain assets as non-core, according to Deloitte's 2013 Divestiture Survey Report, Sharpening Your Strategy.
Eighty-one percent of surveyed executives indicate that pruning their businesses of non-core assets was one of the two most important reasons for divesting, up from 68 percent in Deloitte's 2010 survey. In contrast, only 37 percent of executives surveyed say financing needs were one of the two most important reasons to divest, down from 46 percent in 2010.
"We are seeing a significant change from 2010, when economic concerns were paramount for M&A executives," said Andrew Wilson, U.S. Leader of Merger and Acquisition Seller Services for Deloitte & Touche LLP.
"Executives appear to be on the hunt for growth in their business units, while divesting non-core assets that show limited growth potential or poor operating performance," continued Ellen Clark, Managing Director, Deloitte Corporate Finance LLC.
The Deloitte report indicates that domestic corporate buyers lead the pack as the buyer of preference for respondents. Nearly six in 10 (59 percent) of those surveyed indicate a preference for domestic corporate buyers. According to the survey, in the last 24 months, reportedly 84 percent of divestitures were marketed to domestic corporate buyers with domestic private equity buyers being targeted by nearly half (49 percent) companies executing these transactions, and cross-border corporate buyers by 45 percent. More than half (51 percent) of those surveyed indicate that divestitures took more time than expected to complete.
"The speed of these transactions was one of the top factors surveyed executives selected when choosing a buyer," said Anna Lea Doyle, M&A Principal, Deloitte Consulting LLP. "Buyers and sellers are up against an array of challenges ranging from regulatory to internal communications and retaining and mobilizing talent to execute the transaction. Indeed, almost three quarters of the executives surveyed indicate that they depend on outside vendors always or often to tackle the many hurdles dealmakers face with divestitures, with nine in 10 saying they do so at least some of the time."
Despite the obstacles for executives approaching divestitures, more than two-thirds (68 percent) of respondents report that the value of their most recent divestiture met expectations. An additional 17 percent report that their most recent transaction surpassed company expectations.
Additional survey findings
Further highlights from Deloitte's Divestiture Survey Report findings include:
- Reasons to pursue a carve out: More than one-third (37 percent) of executives at companies that divested non-core assets over the last 24 months said the reason was limited growth potential, with non-synergistic products (30 percent) and poor operating performance (22 percent) also common reasons.
- Human resources concerns: Executives surveyed consider employee morale to be a major challenge to attempting divestitures, with 93 percent of those surveyed reporting concern for the morale of employees of the for-sale business unit as a significant issue.
- Outlook for 2013: Nearly half (47 percent) of respondents indicate that they expect divestiture activity to remain at the same level in the next 12 months as in 2012, while more than a quarter (28 percent) of respondents expecting an increase.
- Post-divestiture speed bumps: Executives surveyed say their greatest challenge following a divestiture was Transition Service Agreements, stranded costs and retained contingencies or exposures.
About the Survey
Deloitte's annual Divestiture Survey was conducted online by Bayer Consulting from Oct. 17 through Nov. 2, 2012 and was completed by 148 executives, comprising both public (60 percent) and private (40 percent) companies. Annual revenues for 35 percent of represented companies exceeded $5 billion, with an additional 23 percent of companies generating between $1 billion and $5 billion. The vast majority (78 percent) of companies were headquartered in the U.S.
Those surveyed included a cross-section of industries including manufacturing (33 percent); telecommunications, media and technology (12 percent); energy and resources (12 percent) and healthcare and life sciences (7 percent).
About Deloitte's Divestiture Practice
Deloitte's Divestiture practice is made up of financial advisory, consulting, tax and accounting professionals within Deloitte and the Deloitte Touche Tohmatsu Limited member firms around the world. This practice provides corporate strategic buyers and sellers as well as private equity investors with a broad continuum of advisory services supporting divestiture strategy, due diligence, transaction execution and separation planning and value realization across many industries and business functions.
Deloitte Corporate Finance LLC ("DCF"), member FINRA, is a wholly owned subsidiary of Deloitte Financial Advisory Services LLP ("Deloitte FAS"). Deloitte FAS is a subsidiary of Deloitte LLP. Investment banking products and services within the United States are offered exclusively through DCF.
As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.