In 2018, a noticeable shift in corporate divestiture trends has taken place. During the first quarter, the number of U.S. corporate divestiture transactions was up 8.2 percent over the same period in 2017, according to S&P Capital IQ. This marks the first increase in quarter over previous year quarter activity since the third quarter of 2014. This trend is in stark contrast to the 9.5 percent decline in average annual divestitures that has taken place since 2013.
Limited supply and high demand for M&A deals has been the primary driver behind the resurgence in divestitures. This imbalance has been fueled by significant buy-side purchasing power, and exacerbated by a limited inventory of quality companies for sale. This has also resulted in buyers becoming increasingly competitive when bidding on quality assets, driving valuations higher. Sellers have increasingly taken notice of this highly competitive environment and have divested non-core businesses and assets for premium multiples.
Companies frequently use the proceeds from a divestiture to make new investments, pay dividends, buy back shares of stock, pay down debt or simply increase liquidity. Divestitures also allow companies to renew their focus on core businesses, while shedding business units that do not fit their go-forward strategies.
During May, two prominent Cleveland-based companies, KeyBank and Lincoln Electric, completed divestitures of their own.
Matt Sweetis an associate, and Marc Fleagle is a vice president with MelCap Partners LLC. MelCap Partners is a middle-market investment banking advisory firm. For more information, please visit www.melcap.comor email [email protected].
