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Europe leads as global divestment rockets

Mar 17
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Europe leads as global divestment rockets

Global divestment activity has soared in 2014, up 79 per cent in just the first two months of the year, according to an analysis from Deloitte.

The consultancy firm notes that 50 deals worth $16 billion (£9.6 billion) have already been reported this year, compared to 28 worth $11.6 billion in the same period last year. This is dramatically different elsewhere in the world. For example, there has been a decline in divestments in North America and the UK, dropping by nine and ten per cent respectively.  

Dan Beanland, head of divestments at Deloitte, said: “Europe is now divesting a great deal more than anywhere else in the world. A large amount of corporate rationalisation is boosting supply as private equity houses look for attractive divested businesses to turn around. 

“We are also seeing an increasing number of smaller, tactical deals, which have pushed deal volumes up, but values down.”

He added that divestments are now a matter of strategy rather than survival, with companies finding ways to enhance performance by repositioning for growth. By divesting, businesses can produce increased cash from sales that can be invested to expand higher growth segments, coupled with more focus on a smaller portfolio.

According to Deloitte, companies globally have made over $500 billion worth of vendor installed divestments since 2009.

Mr Beanland said his company expects to see more divestiture this year as businesses respond to shareholders, activists and analysts in order to show how their corporate strategy is in line with their mergers and acquisitions policy.

Deloitte only considers a quarter of these companies as being truly transparent in their market communications - this comment is based on a review of FTSE 100 annual reports, investor presentations and analyst comments.

“Good communicators include HSBC and Aviva, and a number of outside pressures, including shareholder activism, will force other companies to be clearer about their divestment strategies,” Mr Beanland added.

He concluded that Deloitte’s analysis has revealed that 60 per cent of sellers - involved in divestment activity worth more than $500 million - outperformed their relative index from 2006-12, which is evidence that it can be a good way of adding value.

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