Content thumbnail Global Corporate Divestment Study

Achieving divestment goals A successful divestment meets three criteria: • Has a positive impact on the valuation multiple of the remaining company • Generates a sale price above expectations • Closes ahead of timing expectations Only 19% of sellers in our survey meet all three key success criteria. What sets these high performers apart? They take the time to prepare well in advance of a divestment, they understand the potential buyer pool and the buyers’ needs, and they communicate the value of the transaction to internal and external stakeholders. What triggered your most recent major divestment? Why the private equity perspective Opportunistic (including unsolicited approach by a buyer) on exits is important 31% 52% Our survey is based on interviews with both corporate and Unit’s weak competitive position in the market PE executives. The corporate responses we received suggest 18% there is much companies can learn from expert buyers and 36% sellers — private equity firms — regardless of whether they Not part of the core business consider PE a likely buyer of their business. 15% 28% Over the past three years, PE firms have exited companies High future cash investment requirements at nearly 1.5 times the rate at which they’ve acquired them; 13% in fact, the 20 largest PE firms have each sold an average of 31% eight companies per year. Moreover, they are very good at Negative impact on risk/reward balance of portfolio what they do: 12% • Over a 10-year period, US PE firms outperformed public 43% 1 markets by 62%. Concerns related to shareholder activism • Only 1% of PE firms that responded to our study say their 11% last exit did not meet timing expectations. 19% Swapping assets This section focuses exclusively on the overall divestment 0% rationale and performance of our roughly 900 corporate 3% respondents. And the next two chapters focus specifically on what portfolio-review and divestment-execution lessons Most important factor Consideration (all that apply) companies can learn from PE in order to improve overall transaction success. Even as corporates are taking a more opportunistic approach Corporations have clearly bought into the idea of selling, to divestment in this more-active M&A market, the vast yet their results to date have been mixed. Given the high majority are satisfied that making the divestment in the first expectations corporates have for their divestment activity place was the right move. Among companies that completed a over the next couple of years, we strongly recommend that divestment, 84% said they believe it created long-term value in future corporate sellers look to the PE buy- and sell-side the remaining business. But there is room for improvement — perspectives to improve their divestment processes. our survey also reveals that these divestments may not have met the full range of success criteria (see box above), indicating there is still value to be captured. 1 ® Private Equity Growth Capital Council Performance Update Report, March 2015. Cambridge Associates U.S. Private Equity Index (excluding venture capital) ® versus S&P 500 Index (including dividends). 5

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