One person’s trash is another’s treasure: corporate divestitures boom again

Data InsightDealcast 14 June

One person’s trash is another’s treasure: corporate divestitures boom again

Divestitures are surging, led by two conglomerates with 19th century roots.

General Electric [NYSE:GE] in March agreed to sell its aircraft leasing unit for USD 31.2bn and AT&T [NYSE:T] in May agreed to ditch its TV and movie studio WarnerMedia for USD 96bn.

Year-to-date, divestitures have reached USD 370bn and are on track to blow past 2015’s highwater mark of USD 579bn. While fewer divestitures are getting done, they tend to be much bigger in value.

Several factors are at play. For AT&T and GE it was simple economics and a desire to unwind forays beyond their core business: AT&T wants to be a phone company again and put resources toward massive investments in 5G; GE wants to stick to its knitting in industrials.

Today’s giddy public market valuations – both the S&P 500 and Nasdaq have repeatedly set record highs this year – are one reason for today’s bigger divestitures. Another may be that after a pandemic-related pause, companies are taking the opportunity to clean up house now back-to-normal is in sight.

Private equity’s hour

Private equity is one rising star in all this. PE now snaffles around 28% of all divestitures, up from 22% during the heyday of leveraged buyouts in 2007. Notable PE deals this year include Verizon Communications’ [NYSE:VZ] sale of AOL/Yahoo to Apollo for USD 5bn and Nestle’s sale of its North American bottled water business to One Rock Capital and Metropoulos for USD 4.3bn.  Private equity has record levels of dry powder to deploy plus lenders are clamoring to finance deals on attractive terms. That has led to a chase for relatively few assets, which in turn has also driven deal values up.

Who's next?  

Many companies are mulling divestitures to future-proof themselves. Automotive supplier BorgWarner [NYSE:BWA] will divest its internal combustion businesses over the next few years as it shifts gear to electric vehicles, Lumen Technologies [NYSE:LUMN] – created from CenturyLink’s merger with Level3 –  is looking to sell its legacy copper lines and its Latin America business to focus on 5G infrastructure, and cable company WideOpenWest [NYSE:WOW] is exploring a sale of clusters of assets in the Midwest and the Southeast as it looks to right-size, according to reports by Mergermarket. One thing is for sure: private equity will be watching.

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