Cavalry arrives: Carve-outs to the rescue

Data InsightDealspeak 22 May

Cavalry arrives: Carve-outs to the rescue

European M&A might be battling to stay on its feet, but can you hear that distant noise? The cavalry is coming!

Instead of heavily armed aristocrats on horseback, the solution is likely to come from corporate executives thinking hard about how to optimize their balance sheets. This might not sound quite as dashing as a massed cavalry charge, but dealmakers are likely to be almost as grateful as embattled infantrymen when the horses arrive.

There is still a significant amount of carve-out activity in Western Europe, as well as the US, according to Joakim Noto, managing partner and chairman of Mimir Group. Activity is particularly intense in technology, life sciences, manufacturing and business services, he said.

Multinational corporates will continue to sharpen their strategic focus, Mimir Invest's Noto said. The need to review capital deployment and the cost of capital will act as a catalyst for further carve outs in the future, he added. 

The largest recorded divestment so far in 2023 has been the sale of Bollore Logistics by Bollore [EPA:BOL] to Merit Corp for EUR 5bn. 

Half a league onward!

So far in 2023, total M&A volumes for Europe are just EUR 162.6bn, according to Mergermarket data. This is 61% lower compared to the same period last year.

On the other hand, some 321 carve-outs and divestments have been announced from European public companies, with a total year-to-date (YTD) volume of EUR 38.3bn. The deal count is down 24% on the same period of 2022, while total volume is 52%. 

Breaking down the divestment/carve-out activity, real estate was the top sector in 2023 with 19 deals announced valuing EUR 7bn, this was followed by professional services (EUR 5.6bn) and Transportation (EUR 5.6bn).

Focus, focus, focus

The main advantage of carve-outs in difficult economic circumstances is that it allows corporates to focus on their core competencies while effectively raising capital and re-investing the proceeds. 

Carve-outs also provide an opportunity for private equity (PE) firms to invest in specific industries or assets. PEs are sitting on historical levels of dry power of USD 3.7tn, according to a report by Allvue Systems. 

Meanwhile, some corporates are also positioning themselves, including Katjes International, which is part of Germany-based food and personal care Katjes Group. It wants to buy carve-outs from large corporates.

Some of the upcoming divestments lined up includes the sale of the internet of things (IoT) arm of Vodafone [LON:VOD]; and the ongoing divestment of Wellspect HealthCare by Dentsply Sirona [NASDAQ:XRAY] for which Blackstone, EQT, and KKR are bidding.

Meanwhile, Kindred Group’s [STO:KIND-SDB] shareholders expressed support to launch a strategic review which would lead to a full sale or a carve-out of assets; GfK is planning to sell its global consumer panel services (CPS) business in order to placate concerns that the European Commission (EC) has expressed regarding its merger with NielsenIQ; and Bonava [STO:BONAV-B] is close to selling its Norwegian business, Bonava Norge.

Charge for the guns! 

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