Quarter-Trillion Dollars of Breakups Drive Dealmaking Recovery
(Bloomberg) -- Chief executive officers are no longer trying to be all things to all people.
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The return to a more normal post-pandemic environment, in which inflation and supply chains are stabilizing, has prompted executives to re-assess their business mixes to best position companies for future downturns — or before their hands are forced by activist investors.
As a result, bankers say, the decision-making pendulum is swinging once more from diversification to simplification, with boards looking for ways to raise cash for core operations and possible strategic acquisitions to support these.
Companies have been involved in at least $250 billion of spinoffs and asset sales this year, data compiled by Bloomberg show. The trend is evident across major sectors, from chemicals to consumer health, and is helping to drive the broader pickup in deal activity around the world.
“Markets and activists are keeping companies honest,” said Hernan Cristerna, global chairman of mergers and acquisitions at JPMorgan Chase & Co. “Executives want to pre-empt demands by exiting non-core assets that may fundamentally impair or distract from the performance of their core businesses.”
Portfolio Simplification
Many of this year’s most notable breakups have come in Europe, where health-care company Sanofi is selling its over-the-counter drug business, consumer group Unilever Plc is exiting ice cream and chemicals producer BASF SE has plans to list its agricultural unit. Meanwhile, consumer health group Reckitt Benckiser Group Plc has started discussions with suitors about a possible £6 billion-plus ($8 billion) sale of its homecare assets.
“There is logic in scaling down to core or higher-growth businesses,” Cristerna said. “It’s easier to grow from a smaller and more focused base.”
Elsewhere, cement maker Holcim Ltd. is separating its North American operations to pave the way for a listing next year in the US valued at more than $30 billion, and industrial technology group Fortive Corp. is hiving off its testing and measurement business. Intel Corp., once the world’s largest chipmaker, this month said it will separate its ailing manufacturing operations from the rest of the company.
“Portfolio simplification has been a major theme we’ve seen manifest globally this year and expect separation announcements to continue through year-end,” said David Dubner, global head of M&A structuring at Goldman Sachs Group Inc.
To be sure, corporate separations aren’t a new phenomenon and some of the biggest of 2024 have been a long time in the making. General Electric Co. completed the spinoff of its energy business GE Vernova Inc. in April. The move was part of GE’s plan, announced in 2021, to split into three separate companies in a bid to unlock value for shareholders.
“Boards are definitely more focused on preparedness and are exploring a whole suite of strategic options, whether it’s a divestiture, spinoff or a sale of a unit,” said Elizabeth Gonzalez-Sussman, head of the shareholder engagement and activism practice at Skadden, Arps, Slate, Meagher & Flom LLP. “It’ll really be driven by what makes sense for the company and the specific industry.”
Trending Up
This has all been contributing a broader bounce back in dealmaking after two down years. The value of deals globally has risen about 16% in 2024 to $2.3 trillion, the Bloomberg data show. That’s also thanks to a hectic summer that brought the biggest deal of 2024: snack maker Mars Inc.’s agreement to buy Kellanova for nearly $36 billion including debt.
Mars-Kellanova was the third transaction valued at more than $30 billion to be struck this year, following Capital One Financial Corp.’s proposed takeover of rival Discover Financial Services and chip designer Synopsys Inc.’s agreement to buy software developer Ansys Inc.
And there is potential for more megadeals in the fourth quarter, with convenience store operator Alimentation Couche-Tard Inc. still pursuing a friendly takeover of 7-Eleven owner Seven & i Holdings Co. and chipmaker Qualcomm Inc. having approached Intel about what would be one of the biggest M&A transactions of all time.
Private equity firms, whose buying and selling will be central to any sustained recovery in M&A, were showing more confidence around leveraged buyouts even before the Federal Reserve’s decision to cut interest rates earlier this month.
They agreed deals worth more than $100 billion during the traditionally quiet months of July and August. These included TowerBrook and Clayton Dubilier & Rice’s $8.9 billion purchase of R1 RCM Inc., a company that helps hospitals optimize billing and payment functions. This month, Blackstone Inc. and Vista Equity Partners said they’d acquire software provider Smartsheet Inc. for about $8.4 billion in another of the year’s largest take-privates.
Heading into the final quarter, M&A bankers remain on course to finish the year with a bigger haul than the disappointing 2023. By just how much may depend on boardroom sentiment around the US presidential election on Nov. 5, as well as the ongoing and developing conflicts in Ukraine and the Middle East.
“The election may give some boards pause on making transformative moves around the weeks preceding and following,” said Dubner at Goldman Sachs.
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