The 2021 M&A Report: Mastering the Art of Breaking Up
Divestitures create real shareholder value, but only for sellers who pick the right asset, timing and exit route and master the cost and complexity of the carve-out.
Summary
Across about 5,500 divestitures of $250 million or more (from a database of 840,000 deals), sellers' announcement returns rose from 0.23% in 2016 to 0.74% in 2021 and two-year relative TSR from about 1.5% to 4.0%. Returns vary by industry, and high announcement pops in flashy sectors often precede weak two-year TSR. Selling non-core assets in good markets, via spinoffs or trade sales rather than IPOs, and selling frequently lift returns. Carve-outs are costly and risky, so lean experienced teams, tracked budgets and early action on stranded costs are essential.
Editor's opinion
Periodic portfolio reshuffling and divestiture of noncore assets create substantial shareholder value when companies manage the costs and complexity well.
Key concepts
Divestitures · Cumulative abnormal returns · Relative TSR · Carve-outs · Stranded costs · Conglomerate discount