Companies divesting assets in 2019 post second worst performance on record

ARLINGTON, VA, March 3, 2020 — Six out of 10 companies that sold portions of their business in 2019 lost shareholder value, according to leading global advisory, broking and solutions company Willis Towers Watson’s Divestment Performance Monitor, in partnership with Cass Business School.¹

Based on share price performance, companies actively engaged in divestment deals in 2019 underperformed the Global Index by an average of –6.3 percentage points (pp). This is the second worst year since the launch of the database in 2010, only fractionally better than 2018, the worst year on record with an underperformance of –6.5 pp.

“During the past decade, in the wake of the 2007 to 2008 financial crisis, divesting assets has been challenging for many companies, in terms of their share price performance,” said Duncan Smithson, senior director, M&A, Willis Towers Watson.

The latest data show the performance of divestitures in the second half of 2019 was negative with a performance of –6.1 pp lower than the index. Although this is an improvement compared with the first six months of 2019 (–7.1 pp), divestments have now, on average, failed to add value for six consecutive years.

“Even in the most difficult years, over 40% of companies managed to add shareholder value post-divestment,” said Smithson. “These companies have understood the time, complexity and cost involved — from implementing thorough due diligence, to navigating often overlooked human capital issues — allow sellers to approach a deal from a position of strength and command the highest price for the asset.”

The study also shows that acquirers of divested assets, which managed to outperform their industry benchmarks by an average of +1 pp in the first six months of 2019, found the second half of the year much more challenging and underperformed by –12.7 pp.

Deal volume in the second half of 2019 (320) was high compared with the first six months of the year (251). This is consistent with every second-half period since 2010; last year, this was due to a significant upsurge in deals across Europe and Asia Pacific. Despite increased activity, the total number of deals completed in 2019 (571) is a record low since 2010.

Insights from the data, which look at companies selling portions of a parent company to both listed companies and private equity buyers, include:

• All regions underperformed: Asia Pacific divestitures performed worst of all regions (–8.2 pp) in H2 2019, followed by North America (–3.3 pp) and Europe (–1.2 pp).
• Upward trends emerging: Over the past 18 months, divestment performance in Europe and North America improved each half year, from –5.2 pp to –1.2 pp across the period in Europe and from –6.6 pp to –3.3 pp in North America.
• Unusual number of small deals: H2 2019 saw an unusually high proportion of deals worth less than 5% of the divesting company. Sixty-four percent of the deals took place at this size, compared with 40% to 45% of deals typically in previous periods.
• U.K. divestitures buck global trend: The positive U.K. performance during the past 12 months (+4.0 pp) reflects a longer-term trend that has been sustained for the past three years (+1.1 pp).
• Spin-offs almost disappear: In H2 2019 the number of spin-offs taking place almost disappeared completely, to just 11. This is less than half the number typically seen per half year, over the past decade.

“Notwithstanding the dip in deal volume, the uncertainty of tariffs, geopolitical concerns and shareholder pressure, companies will continue to divest, driven by the need to streamline their operating models to pursue new growth opportunities,” said Smithson. “Despite the scale of challenges companies face to divest well in such difficult conditions, the data also point to where sellers are successfully bucking the negative global trend. A disciplined and rigorous approach to the complex separation process will help attract better buyers, position the remaining business for future growth and drive shareholder value.”

Willis Towers Watson methodology

• All analysis is conducted from the perspective of public sellers.
• Share price performance within the semiannual study is measured as a percentage change in share price from six months prior to the announcement date to the end of the half year of completion.
• Only completed divestitures with a value of at least $50 million that meet the study criteria are included in this research.
• All private equity sellers are excluded in the sample.
• Deal data sourced from Refinitiv.

About Willis Towers Watson M&A

Willis Towers Watson’s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have particular expertise in the areas of planning, due diligence, risk transfer and post-transaction integration, areas that define the success of any transaction.

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving in more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

¹ The global database analyzes the share price performance of companies selling assets, from six months prior to the divestment announcement to up to six months after the divestment has completed.