December 3, 2009
Survey: Divestiture Market Poised for Increased Activity
Recently, a PricewaterhouseCoopers survey of top U.S. executives found that 69% expect divestiture activity to increase in 2010, with 56% foreseeing domestic corporate buyers as primary players. At the same time, the survey results show that the divestiture process is growing more complex, creating strong headwinds for potential sellers. Of the respondents who have completed transactions in the past 12 months:
– 72% said the divestiture process has taken longer to complete
– Of those, 51% said they had taken at least 20% longer to conclude and an additional 21% said completions had taken at least 10-20% longer than in prior years.
Here are other findings:
– Buyer requirements for more due diligence information were the primary reason cited by 75% of the respondents for the prolonged timeframe.
– 43% reported that potential buyers are asking for some additional information and access, and an additional 32% said buyers were requiring extensive additional information.
– When those who reported divestiture activity in the past 12 months were asked to rate the importance of having audited financial statements available for a divestiture target, 49% said it had become more important now than in previous markets and 27% referred to it as “critical.”
– In general, companies appear to struggle with the divestiture process. When asked to compare their organizations’ acquisition and divestiture processes, 46% of all participants said their acquisitions process was better-defined. In addition, 39% said they had no formal pre-divestiture review process that was performed consistently.
– When asked to identify the most complex part of a divestiture, especially a carve-out, 25% selected finding a buyer, followed by executing the separation of the business (23% ), and producing carve-out financial statements and re-casting historical results (21%).
– Valuations remain a moving target and a significant factor contributing to the stagnant M&A market: 90% placed the value expectation gap between buyers and sellers in 2009 at between zero and four turns of EBITDA. Interestingly, half of the respondents (50%) identified corporate domestic buyers as the predicted source of higher valuations in the coming year.