DealLawyers.com Blog

The latest M&A outlook from Goldman Sachs (available for download) highlights a push toward simplification. Investors reward companies for moving away from a conglomerate model and toward a more narrow geographic focus — and corporates and activists are taking note.

Corporate simplifications continue to fuel M&A as companies look to highlight undervalued assets, separate divergent businesses, and sharpen geographic focus. Large-cap companies ($25B+) moving away from conglomerate models are especially active—representing ~40% of announced and closed spin-offs in 2024.

This trend is driven by:

– The operational complexities of managing corporate assets across multiple regions

– Rising geopolitical tensions

– Evolving market appetites created by the changing pace of energy transition

– A focus on optimizing capital allocation

– Valuation discrepancies that are encouraging corporates to seek more favorable capital markets through new domiciles, listings, or headquarters

So, “corporates are pursuing regional separations to unlock valuation, target specific investor bases, and achieve greater strategic clarity in a shifting global landscape.” The activity is also supported by these trends:

Sponsors are becoming key to simplification by acting as carve-out partners while cost of capital continues challenging returns, and by giving both valuable expertise and credibility to corporates’ transactions.

Creative deal structures are enabling more activity; earnout provisions, collars, and equity rollovers offer innovative solutions tailored to the specific needs of each company.

Activism is accelerating spin-offs, but spin-offs are also accelerating activism amid a newfound focus on SpinCos—underscoring the importance of governance and adequate capitalization for newly spun-off companies.

– Meredith Ervine