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Divestment activity poised for rebound as companies look beyond COVID-19

Following a nosedive in performance during first half of 2020, companies recalibrate their strategies to recover and thrive

Mergers and Acquisitions

September 9, 2020

ARLINGTON, VA, September 9, 2020 — The value of divestment deals plunged to record lows in the first six months of 2020, according to Willis Towers Watson’s Divestment Performance Monitor (DPM), in partnership with the Business School (formerly Cass). As the COVID-19 pandemic emerged, with corporations confronted by a sudden and dramatic shift in their markets, 63% that sold portions of their business in the first half of 2020 underperformed.

Companies actively engaged in divestment deals in the first half of 2020 underperformed the Global Index1 by an average of 11.3 percentage points (pp). This is an even sharper decline than H1 2019 (–7.0 pp) and H2 2019 (–5.9 pp), and the poorest performing six-month period since the divestments database launched in 2010.

While the negative performance is significant, it is not unexpected considering the severity and volatility of the markets in the first half of 2020. Given the defensive role that divestitures can play in distressed circumstances, the absence of a bigger spike in deal volume is perhaps more surprising. With 292 deals completed in the first half of 2020, overall numbers are down globally compared with the previous six months (315).

Another unforeseen outcome was an anticipated surge in private equity (PE) buyer activity, which has so far failed to materialize, despite the PE industry holding record levels of capital. Instead, PE buyers accounted for just 22% of all divestments in H1 2020, a market share on par with the same period last year.

“Deal making plunged in the second quarter of 2020, as COVID-19 sent the M&A business into a deep freeze after a decade-long boom,” said Duncan Smithson, senior director, M&A, Willis Towers Watson. “Volumes in the third quarter will most likely remain stuck in low gear, being tied to deal activity occurring just after the full impact of the pandemic struck. A marked increase in completed deals is then anticipated for the final quarter of 2020.

“Companies face unprecedented challenges as a result of the crisis’ financial impact, forcing many into survival mode. Depending on the severity of the fallout from COVID-19, divesting non-core assets will be key to preserving and enhancing value for many companies, as they reshape their portfolios to recover and thrive in a post-crisis world.”

Insights from the DPM data, which look at companies selling portions of a parent company to both listed companies and private equity buyers, include:

  • All regions but Europe underperformed: North America divestitures performed worst of all regions (–23.5 pp) in H1 2020, followed by Asia Pacific (–17.1 pp). In contrast, European divestitures managed to outperform their industry benchmark by an average of +4.7 pp, boosted by a positive performance of +4.9 pp from U.K. deals, which account for roughly one-quarter of all European divestitures.
  • Megadeal activity on par with 2019: Six deals closed in H1 2020 compared with five deals in H2 2019. The performance of these megadeals dipped sharply, currently at –22.4 pp compared with +6.1 pp for the last six months of 2019.
  • Buyers unable to buck downward trend: Buying divested assets was the only M&A strategy in 2019 to create shareholder value; however, acquirers (–15.7 pp) are now performing worse than sellers (–11.3 pp), suggesting both parties would have been better off sitting out the market turbulence in the first half of 2020.
  • Selling to PE buyers: The trend for seller performance to be worse when dealing with PE buyers (–14.6 pp) compared with corporate buyers (–9.5 pp) continued in H1 2020. PE acquirers tend to have professional transaction teams with deeper experience and more regular deal flow, enabling them to negotiate harder. To optimize value and ensure buyers do not win at their expense, sellers will benefit from thorough planning and preparation for sale.

Although the data show that just over six out of 10 deals (63%) from H1 2020 underperformed, this also means that the remaining deals were successful in outperforming rival companies that did not divest.

“Current trends driving divestment activity may accelerate, and many organizations will soon find themselves without the luxury of choice,” said Smithson. “There is clear evidence that down cycles can present unique opportunities and sell-side M&A can be an effective tool. The most resilient and successful companies will be ones that can quickly reidentify noncore assets, are prepared to execute, show discipline and focus on portfolio transformation.”

Willis Towers Watson methodology

  • All analysis is conducted from the perspective of public sellers.
  • Share price performance within the semiannual study is measured as a percentage change in share price from six months prior to the announcement date to the end of the half year of completion.
  • Only completed divestitures with a value of at least $50 million that meet the study criteria are included in this research.
  • All private equity sellers are excluded in the sample.
  • Deal data are sourced from Refinitiv.

About Willis Towers Watson M&A

Willis Towers Watson’s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have expertise in the areas of planning, due diligence, risk transfer and post-transaction integration, areas that define the success of any transaction.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving in more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.


1 The global database analyzes the share price performance of companies selling assets, from six months prior to the divestment announcement to up to six months after the divestment is completed.

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