Divestitures have already hit multiyear highs, Mergermarket data show.
Divestitures in the first three months of 2021 hit multiyear highs as corporations seized the opportunity to sell unwanted assets to pare debt from their balance sheets. Going forward, corporate divestitures may be driven by financial distress as Covid-19 relief funding tapers off, according to several deal makers interviewed by Mergermarket.
The U.S. saw 29 corporate divestitures in the first quarter for a total value of $50.3 billion, up from 26 deals for $11.6 billion in the prior-year period and 22 deals worth just $4.1 billion in 1Q19, according to Mergermarket data.
U.S. Divestment Activity
The quarter’s deal value was bolstered by General Electric’s
That sale alone marked a larger value than every quarter in the last 15 years except for the second quarter of 2007.
Erik Belenky, a partner at King & Spalding, said he sees no evidence the divestitures represent a structural shift. The U.S. so far has not seen a significant increase in distressed assets being put on the block, as government funding added to the largely successful efforts by companies to delay rents and obtain debt and equity financing to shore up their balance sheets, he said.
The airline industry, for one, received more than $50 billion in federal aid since March 2020.
However, the number of companies rated B- or lower with a negative outlook by S&P Global is increasing, Belenky said, a signal that distressed companies are out there and may soon look to transact.
“I do think there’s a ‘to be continued’ aspect to this,” he said, adding that most catalysts for these distressed companies to consider M&A are “linked back to the general economy.”
A prolonged delay in activity in the travel space, especially as government funding begins to run out, could exasperate distressed activity in the industry, said Stuart Brinkworth, head of leveraged finance in Europe at Mayer Brown. Although countries are already starting to ease restrictions on travel, people still need to jump through many hoops, he added.
Industries that fared well during the pandemic such as healthcare have already seen an increase in divestment activity, Brinkworth said, as some companies have attempted to consolidate in a relatively safe market during Covid-19. In March, private equity firm Hellman & Friedman announced it was acquiring cardiology service maker Cordis from Cardinal Health
The surge comes as the U.S. had an active quarter for M&A overall and record-breaking deal values. The first three months of the year saw 1,595 deals for total value of $563.2 billion, compared with 1,708 deals for $554 billion last quarter, according to Mergermarket data.
Rachel Stone (rachel.stone@acuris.com) covers fintech and technology for Mergermarket and Dealreporter in Charlottesville, Virginia.
Sydney Halleman (sydney.halleman@acuris.com) covers healthcare out of Mergermarket’s Charlottesville office.
Philip Segal (philip.segal@acuris.com) is Head Analyst for Mergermarket – Americas.
