Beyond COVID: Divestment activity poised for rebound?

The value of divestment deals plunged to record lows in the first six months of 2020, according to the Willis Towers Watson/Cass Divestment Performance Monitor, and, following a dramatic nosedive in performance in the first half of 2020, companies are now looking set to recalibrate their strategies to help them recover and thrive post-crisis.

Sudden shifts led to 63% of corporations selling portions of their business in the first half of 2020. Whilst it was the poorest performing six-month period in the database's decade-long history, it was of course not unexpected. What was perhaps more surprising was that the anticipated surge in private equity buyer activity failed to materialise, despite the PE industry holding record levels of capital.

Jana Mercereau, head of corporate M&A consulting, Great Britain at Willis Towers Watson, said: “Dealmaking plunged in the second quarter of 2020, as COVID-19 sent the M&A business into a deep freeze after a decade-long boom. Volumes in the third quarter will most likely remain stuck in low gear, being tied to deal activity occurring just after the full impact of the pandemic struck. A marked increase in completed deals is then anticipated for the final quarter of 2020.

“Companies face unprecedented challenges as a result of the crisis’ financial impact, forcing many into survival mode. Depending on the severity of the fallout from COVID-19, divesting non-core assets will be key to preserving and enhancing value for many companies, as they reshape their portfolios to recover and thrive in a post-crisis world.”

“We do not know exactly what lies beyond the COVID-19 crisis, but current trends driving divestment activity now may accelerate, and many organisations will soon find themselves without the luxury of choice,” Mercereau added. “There is clear evidence that down-cycles can present unique opportunities and sell-side M&A can be an effective tool as companies enter the recovery stage of COVID-19. The most resilient and successful companies will be those which are able to quickly re-identify non-core assets, which are prepared to execute at the right time, which show discipline and which focus on portfolio transformation.”

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