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Has their been an increase in corporate divestitures in the first half of 2017?
Hello! Thank you for your question regarding whether corporate divestitures have seen an increase in the first half of 2017. In short, it was difficult to determine whether corporate divestitures have increased in the first half of 2017, mainly because the 2nd quarter of 2017 has yet to close. Because the 2nd quarter has not closed, we were only able to find hard data for the 1st quarter of 2017. However, we were able to find that for the 1st quarter of 2017, divestitures saw an increase in volume in the US, but saw a decrease in volume globally. Value wise, both US and global markets saw an increase. Additionally, we were able to find specific information per industry, with some of the data reflecting year-to-date numbers. Below is an in-depth analysis of our findings and methodology.
METHODOLOGY
To fully answer your question, we focused on searching for industry reports published by global consulting companies such as Deloitte, PricewaterhouseCoopers (PwC), McKenzie & Company and Ernest Young. We also searched government databases, corporate websites and trusted media sites.
PricewaterhouseCoopers' Q1 2017 Deals Industry report provided the most information to directly answer your question. Their report provided year-to-date information for some industries, however, only 1st quarter information was provided for US deals. We would like to note that all reports found were based on the deals and M&A industry, which includes divestitures. Mergers and acquisitions are a direct result of a company deciding to divest a portion, or all, of their assets; therefore, we feel confident that the data provided reflects corporate divestment activity accurately.
Because we could not find any hard data for the 2nd quarter of 2017, we decided to focus our search on industry reports that provided forecasts of corporate divestitures in 2017. Using the same methodology detailed above, we located reputable reports from Deloitte, Baker McKenzie and MergerMarket discussing the attitudes and outlooks of corporate deal-makers. First, we will explore our findings for the 1st quarter of 2017. After detailing the data found, we will then discuss forecasts and predictions regarding divestments based on corporate attitudes.
DIVESTMENT PERFORMANCE - US MARKETS
Overall, in the US, there was an increase in deals in relation to both value and volume. The growth in value was very little compared to 2016. In PwC's reports, performance was based on comparisons between the 1st quarter of 2016 and 2017. In the 1st quarter of 2016, deal values were reported to be $334 billion. For the 1st quarter of 2017, values are reported to be $335 billion. Industry experts view this as a stagnant market rather than growth. Volume wise, deals increased by 14%, which equates to a 450 deal difference.
DIVESTMENT PERFORMANCE - GLOBAL MARKETS
Globally, the number of deals fell by 17.9% compared to the 1st quarter of 2016. However, deal value rose by 8.9%. The total value reported for the 1st quarter or 2017 is $678.5 billion. According to the report released by MergerMarket, the average deal value rose to $403.4 million. Based on these numbers, industry experts predict that, on a global level, mega-deals will see an increase.
MergerMarket published a report at the end of May that reflected a similar trend for April 2017, which could be a reflection of divestment performance for the 2nd quarter. Just as with the first quarter, global markets saw a decrease in the volume with a rise in value. Compared to April of 2016, there was a 530 deal decrease in volume. There was a total of 1,026 deals globally in April 2017, while April 2016 saw a volume of 1,556. The value of deals rose 3.8%, totaling $229.9 billion.
Private equity firms saw a decrease in both value and volume for the month of April 2017, however, no additional data could be found for the 1st quarter. In April 2016, there was a total of 268 deals compared to 179 deals in April 2017. The value of deals dropped 17% to $34.3 billion.
DIVESTMENT PERFORMANCE BY INDUSTRY
PricewaterhouseCoopers' report also included deal values and volumes by industry. However, it should be noted that the figures reported for each industry were not consistent in region.
DIVESTMENT PERFORMANCE - MEGA DEALS
MergerMarket conducted a survey asking respondents to predict whether mega-deals would increase, decrease or stay the same. The survey found that 36% of deal-makers believed that mega-deals would decrease and 40% believed they would stay the same. As predicted, PwC reports that mega-deals saw a dramatic decrease in the 1st quarter of 2017, which contradicts some forecasts that 2017 will see an increase in mega-deals. According to PwC, deal values dropped 29% and deal volumes dropped 44%.
DIVESTMENT PERFORMANCE - CROSS-BORDER DEALS
Cross-border deals accounted for 49% of total deal values and 35% of deal volumes in the 1st quarter of 2017 with North America seeing the most activity. The total amount of deals were 1,238 and the total value was $331.2 billion. Respectively, values decreased 3% and volumes decreased by 18% compared to the 1st quarter in 2016. For April 2017, deal values were estimated to be $85.4 billion, however, MergerMarket did not specify the volume amount.
FORECAST PREDICTIONS BASED ON CORPORATE ATTITUDES TOWARDS DIVESTITURES
Reports found have conflicting information regarding forecasts and predictions. Based on market performance, Baker McKenzie, a prominent law firm, claims that the outlook for the deals industry is at an "all-time low since 2013." However, when considering intended actions of corporations, Deloitte predicts that corporate divestitures will a be a key focus for 2017. When surveying CFO's in their 2017 M&A report, 43% of them were expecting to divest assets within the coming year.
Furthermore, Deloitte conducted a separate study in their 2016 Year-End M&A Trends report and found that 73% of their survey respondents indicated that they plan to divest businesses in 2017. This was a 25% increase from their 2016 mid-year report. Specifically, corporations with revenues over $1 billion are expected to have the most activity (79%). Corporations with revenues under $1 billion expressed the same behavior at nearly the same rate (70%). A change in strategy (22%) and the need to reduce debt or raise capital (18%) were the 2 main reasons for wanting to divest assets.
CONCLUSION
To sum up, the US saw an increase in both deal values and deal volumes in the 1st quarter of 2017. Globally, values have risen while volumes have taken a plunge. Even though figures for May 2017 and June 2017 have yet to be released, April 2017 has proven to follow the same trend as the 1st quarter. Predictions for the deals industry vary, however, if based on corporate attitudes and intentions, divestitures may see an increase throughout 2017. During our search, we found that many industry reports published their findings nearly a month after each period ended. Based on these observations, we predict that May 2017 totals may be published between the end of June 2017 and the beginning of July 2017. For 2nd quarter figures, we estimate a publish date of late July and early August.
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