Divestitures Likely to Increase over Next Three Years: Deloitte Survey

Deloitte Divestiture Survey Report: More than Two-Thirds of Companies Planning Divestitures by 2013

Mar 10, 2011, 10:00 ET from Deloitte

NEW YORK, March 10, 2011 /PRNewswire/ -- More than two-thirds of business professionals surveyed recently believe their companies are likely to attempt at least one divestiture—if not more—in the next three years, according to a survey from Deloitte about divestitures.

According to the Deloitte "Divestiture Survey Report," 49 percent of the respondents believe their companies are likely to attempt one to two divestitures over the next three years, while 14 percent may attempt between three to five divestitures, and 4 percent may pursue up to six or more divestitures during this time period.

"We expect to see a higher volume of M&A divestiture deals going forward. Companies that have been holding off shedding non-core businesses should see an encouraging seller's market emerge as potential buyers, flush with cash, begin looking for investment opportunities," said Robert Coury, managing director, Deloitte Corporate Finance LLC.  "Now is the time for companies to start or update their strategic plans for carve-outs."

Jeff Weirens, a leader in Deloitte's merger integration and divestiture practice, added, "Beyond the expectation of accelerated deals in coming years, executives are learning a lot from the divestitures they've attempted to date.  We think most executives intend to stay away from one-bidder 'sweetheart' deals, since including multiple bidders typically results in higher yields.  And, we expect a growing group to broaden the field of potential buyers to include more foreign buyers than ever before."

A total of 65 percent of respondents, plan to put a divestiture back on the market after a previously unclosed transaction.  Respondents report that they will do a few things differently to increase the chances of closing deals when going back to the market by expanding the number of bidders (27 percent), performing more extensive pre-sale diligence (24 percent), reducing operational complexities of the business (15 percent) and preparing management more extensively (15 percent).

Deloitte's Divestiture Survey Report also includes the following strategies that are designed to help organizations leverage the divestiture value:

  • Create a proactive divestiture strategy.  Regularly review determinations of which assets are core, and which assets are not.
  • Build a clear carve-out plan.  Early in the deal cycle, perhaps before entering into deal-related discussions create a clear carve-out plan that includes talent retention and necessary short-term investments to avoid value dilution of the pending sale.
  • Put a highly efficient and knowledgeable transaction team in place.  The group should be charged with facilitating an auction to maximize the number of bidders.
  • Position the business from the perspective of potential buyers.
  • Bring the deal back to the table quickly so that momentum isn't lost and due diligence work is still relevant if the preferred value isn't reached the first time.
  • Leverage transition services agreements.  Use these agreements as a deal-making — not deal-breaking — strategy, and to minimize stranded costs.
  • Get to know foreign buyers. Although domestic buyers dominate the market now, international buyers are elbowing their way in, so think global as the playing field grows.

To download a copy of the report, please go to: www.deloitte.com/us/divestituresurvey.

The Deloitte Divestiture Survey was conducted online from November 22 to December 7, 2010.  The survey was completed by 304 business professionals, who were:  C-suite executives (23 percent); directors (18 percent); vice presidents and associate vice presidents (15 percent); and, managers (10 percent).  The respondents shared their experiences related to divestiture strategy, execution, and the results their companies experienced during the previous three years.

Respondents included representatives of publicly held companies (53 percent).  Industries represented by the respondents included:  consumer and industrial products companies (33 percent), financial services (22 percent) and technology, media and telecom companies (15 percent).

Respondents included companies with revenues of $25 billion or more (10 percent), revenues of $5 billion to less than $25 billion (15 percent), $1 billion to less than $5 billion (21 percent), $500 million to up to $1 billion (nine percent) and up to $500 million (44 percent).

As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

Deloitte Corporate Finance LLC, member FINRA, is a wholly-owned subsidiary of Deloitte Financial Advisory Services LLP. Investment banking products and services within the United States are offered exclusively through DCF.

John La Place

Elizabeth Cheek

Public Relations

Hill & Knowlton

Deloitte


+ 1 212 492 4267

+ 1 212 885 0682

jlaplace@deloitte.com

elizabeth.cheek@hillandknowlton.com



SOURCE Deloitte



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