Given the intense pressure to regularly assess ‘fit and focus,’ this session at the recent M&A Conference at Wharton San Francisco covered a range of divestment strategy considerations.

The discussion considered governance, deal structuring, financing, and the steps needed for a successful spin-off.  This session also reviewed the environment for sell-side transactions from private equity firms and the impact financial buyers have on disposal processes.

The session began with moderator Mark Schmidt, Transaction Advisory Services Partner at EY, presenting key findings from EY’s Global Corporate Divestment Study 2018.

A key finding was that 87% of respondents plan to divest in the next 2 years, more than twice the percent of the previous year’s study, a finding Schmidt called unprecedented.  More than half of those surveyed also “admitted” to holding on to assets too long, an uptick from 40% the previous year.  About three-fourths of those surveyed said that the changing landscape of technology was a factor driving divestment.

Other issues identified in the survey included the importance of regular portfolio analysis, the timing of asset holds, and how business integration might complicate the valuation of individual business units.  

Schmidt asked his guests on the panel about the issue of “speed versus time” with divestments.

Thomas McGee, Vice President of Corporate Development at RPM International, said the natural tendency is to go slower with winners; go faster with non-winners that may have an upside with a buyer, also emphasizing that the quicker the transaction the less likelihood of a breach of confidentiality.

Considering private equity as a buyer, Oliver Vivell, Vice President, Head of Product & Technology CoE, Global Ecosystems & Business Development at SAP, said that private equity buyers may be distanced somewhat from operations and put more focus on the balance sheet.

The panel also considered responding to unsolicited bids and basic portfolio strategies with respect to business integration and hold periods.

McGee noted, “It takes a little bit of courage to admit you have made a mistake; then, these smaller businesses that haven’t been great performers just sit and languish within your portfolio.  Not every acquisition will be a home run … and with those we have to stand up, acknowledge that and find a new home for that business.”