US divestitures quarterly update - Q2 2020 - Deloitte
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US divestitures quarterly update Q2 2020
Divestiture trends
Overall trends
The impact of COVID-19 on divestiture activity has been apparent through Q2 2020,
following relatively stable levels in Q1 2020. Uncertainty surrounding the epidemic
has slowed M&A activity as a whole, with the number of transactions falling from
over 2,200 in Q1 2020 to about 1,500 this past quarter. As expected, divestiture
activity has followed suit, reaching 10-year lows in volume and value. As
In this update
a percentage of total M&A, Q2 2020 divestitures have seen a slight uptick as a • Divestiture trends
percentage of total volume, rising to 21 percent compared to 18 percent at the same • Economic outlook
time last year. Divestiture size distribution has made a shift to smaller deal activity as • Divestiture transactions
corporations focus on non-core asset carve-outs. This quarter has witnessed a jump • Industry analysis
in the ratio of technology and consumer products transactions, reflecting the overall
• Select M&A transactions
sector trends that have picked up during COVID-19. Overall, divestiture activity has
followed macroeconomic trends and is anticipated to increase as companies shore • Appendix
up their business portfolios and strategic direction becomes a bit clearer.
This update will focus on news
and trends in the following
Global activity areas:
• US divestiture volume, value and
While acquirors of divested US businesses continue to be predominantly based in the reported multiples
US, COVID-19 has significantly impacted the number of completed deals, as • US divestitures by buyer type
evidenced by the 21 percent drop in total year-over-year transactions from Q2 2019 • US divestitures by industry
to Q2 2020. Canada and the UK remained the most active acquiror countries by
• Cross-border activity
volume, however, both experienced a meaningful decrease in deals
on a year-over-year basis.
Europe, as a whole, saw a 46 percent decrease in activity over the same time frame Who we are
in 2019. The rest of Europe also saw a significant decline in year-over-year deal Deloitte Corporate Finance LLC is a
volume. China’s activity continues to slow, closing no deals in Q2 2020 off a quarterly leading global middle market M&A
high of five deals in Q3 2018. Japan and South Korea, on the other hand, experienced adviser. Our professionals have
a slight increase in completed deals from Q1 2020, with both closing two in Q2 2020. extensive knowledge across sectors
and use their experience to help
clients create and act upon
In the news opportunities for liquidity, growth,
and long-term advantages.
April 2020 – Shares of Victoria’s Secret parent company L Brands cratered after
Bloomberg reported that private equity firm Sycamore Partners was looking to
abandon its planned acquisition of a majority stake in Victoria’s Secret. In Contacts
February, the two firms announced that Sycamore would spend $525 million to
acquire a 55 percent stake in the company, valuing the lingerie maker at $1.1 Will Frame
billion. L Brands planned to refocus the company on its Bath and Body Works Managing Director
brand after the failed divestiture.2 Deloitte Corporate Finance LLC
wframe@deloitte.com
May 2020 – Melody Investment Advisors (Melody), an alternative asset manager +1 (312) 486-4458
focused on communications infrastructure, announced the acquisition of 90
percent of Uniti Towers, the wireless tower business of real estate investment Tony Blanchard
trust Uniti Group Inc. (Uniti). Uniti’s divestiture is expected to enhance Melody’s Managing Director
position as a leading owner and operator of wireless infrastructure assets.3 Deloitte Corporate Finance LLC
anblanchard@deloitte.com
June 2020 – After the mega-merger of Harris Corporation and L3 Technologies in +1 (312) 486-1640
2019, the combined $17 billion company, L3Harris had set out to ambitiously
divest 8-10 percent of it’s total business. Having completed $500 million in
revenue divestment in 2019 and the sales of L3Harris Technologies’ security
detection and automation business, the company announced it was halting any
further immediate activity.4
Quarterly Update | Q2 2020 | US Divestitures 2Macroeconomic outlook
US gross domestic product ($ in trillions) 1 US treasury yield curve (nominal vs. real) 2
$25.0 15.0% 2.5%
2.0%
$20.0 10.0%
1.5%
YoY Percent Change
1.0%
Interest Rate
$15.0 5.0%
$ in Trillions
0.5%
$10.0 0.0%
0.0%
$5.0 (5.0%) (0.5%)
(1.0%)
$0.0 (10.0%) (1.5%)
GDP ($ in Trillions) YoY % Growth (Adj. for Inflation) Real Yield (%) Nominal Yield (%)
US unemployment rate (percent unemployed) 3 ISM non-manufacturing index and consumer confidence index 4
10.0% 2,200 145.0 70.0
2,000
9.0% 135.0 65.0
Jobless Claims (Thousands)
1,800
ISM Non-Manufacturing
Consumer Confidence
8.0% 1,600 125.0
60.0
% Unemployed
7.0% 1,400
115.0
1,200 55.0
6.0% 1,000 105.0
5.0% 800 50.0
95.0
600
4.0% 85.0 45.0
400
3.0% 200
75.0 40.0
Initial Jobless Claims Unemployment Rate (%) Consumer Confidence ISM Non-Manufacturing
US corporate cash stockpiles of nonfinancial companies 5 S&P 500 debt/EBITDA level 6
$2.5 5.5x
$2.0 5.0x
Total Debt/EBITDA
$ in Trillions
$1.5 4.5x
$1.0 4.0x
$0.5 3.5x
$0.0 3.0x
Cash and liquid investments
Quarterly Update | Q2 2020 | US Divestitures 3US historical divestiture transaction volumes1
600 556 30%
511
481
500 441 454 25%
417
Percent of total US M&A
401
Number of transactions
400 20%
328
300 15%
200 10%
100 5%
0 0%
Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Number of Transactions Divestitures Percent of Total M&A
US historical disclosed divestiture transactions value2
$113
$120
$100
$73
$80 $67
$ in billions
$58
$60
$40 $27
$13 $11
$20
$2
$0
Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Value of Transactions
US historical disclosed divestiture transactions by size3
100% 3%
9% 5% 7% 10%
11% 12%
90%
14% 21% 10%
17% 33%
80% 23% 17% 19%
70% 19% 7%
4% 17% 24%
Percent in size range
3%
14% 17% 4%
60% 14%
14% 10%
50% 11%
40%
67%
30% 62% 57%
51% 55%
49% 50%
20% 44%
10%
0%
Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
$5,000
Quarterly Update | Q2 2020 | US Divestitures 4US historical disclosed divestiture transaction multiples1
Sample size
23 17 18 11 9 7 5 3
100%
9% 6% 11% 9%
90% 4% 22% 20%
6% 29% 33%
80% 18%
Percent in multiple range
35%
70% 30% 20%
33% 22%
60%
36% 29%
50% 20% 33%
40% 35% 33%
43% 28%
30% 29% 20%
20% 27%
11% 33%
10% 24% 22% 20%
13% 9% 11% 14%
0%
LTM LTM LTM LTM LTM LTM LTM LTM
Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
25x
US historical divestiture transactions by buyer type2
100%
11% 15% 15% 14% 12% 11% 14% 12%
Percentage of buyer type
80% 24%
26% 25% 20% 25% 25% 26% 25%
60%
40%
63% 60% 65% 61% 63% 65% 60% 63%
20%
0%
Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Domestic Strategic Private Equity Foreign Strategic
US historical divestiture transactions by industry3
Q2 2019 Q2 2020
1% 3%
3% 4%
4% 14% 14%
7%
6%
7%
11% 13% 13%
417 7% 328
12% 9%
12% 13%
12% 12%
12% 12%
Industrials Media and Entertainment Industrials Energy and Power
Energy and Power Financials High Technology Healthcare
High Technology Healthcare Consumer Products and Services Financials
Consumer Products and Services Consumer Staples Consumer Staples Media and Entertainment
Materials Retail Retail Materials
Telecommunications Telecommunications
Quarterly Update | Q2 2020 | US Divestitures 5Most active acquiror countries by region1
Top countries Total Percent change over Percent change over
transactions Q2 2020 Q2 2019
Americas 280 (24.9%) (21.1%)
United States 262 (27%) (21%)
Canada 14 8% (13%)
Other 2 0% (33%)
Europe 18 (47.1%) (45.5%)
United Kingdom 7 (56%)
France 3 (25%) (40%)
Netherlands 2 (33%) (50%)
Germany 1 (67%)
Italy 1 (50%) (50%)
Other 4 (33%) (71%)
Asia 10 25.0% 11.1%
Singapore 2 0% 100%
China 0 (100%)
0%
India 0 (100%)
(100%)
Japan 2 100% 100%
South Korea 2 100% 0%
Other 4 300% (33%)
Rest of world 1 (50.0%) (66.7%)
Undisclosed acquiror 21
Select large US divestitures2
Announced date Target/Ultimate parent Acquiror Business description Enterprise
value (EV)
May-20 Uniti Group Inc. - Wireless Melody Investment Uniti is engaged in the acquisition and $244.4
Tower Advisors construction of mission critical
Uniti Group Inc. communications infrastructure.
Jun-20 The James New York GFI Capital Resources The James New York Hotel operates as a $181.2
Hotel Group hotel in New York.
Thor Equities LLC
Jun-20 Webtoon Ent Inc. Webtoon Ent KoreaCo WEBTOON Entertainment Inc. provides $178.6
Ltd. web-based comics services.
Naver Corp.
Jun-20 Eos Energy Storage LLC B Riley Principal Merger II Eos Energy Storage LLC develops and $290.0
manufactures energy storage solutions.
Holtec International Corp.
Quarterly Update | Q2 2020 | US Divestitures 6A demonstrated approach to divestitures
Key preparation streams Enhance impact of financials
• Standalone financials accurately capture business results and can
stand up to buyer diligence
• Focus on areas that may drive value include:
- Pro forma normalized results examined by Deloitte
Transaction Services team
- Potential areas for buyer synergies based on intel from
Deloitte network
Build the story - Supportable and well thought out growth story
Pre-empt issues
Minimize risk
Positioning the company
• Develop tailored positioning and highlight specific insights
• Create optimized presentation of information
• Identify and assist to resolve potential issues early
Enhanced value at favorable terms
“When it comes to M&A, no one rivals Deloitte’s
infrastructure, commitment, expertise, or • Customized deal positioning for each buyer leveraging global Deloitte
representation network to access key decisionmakers
• Bespoke process to create competition while providing sense
CEO, Emerson Electric
of opportunity
• Prepare client to negotiate from a position of strength
• Gain agreement on key contract terms prior to granting exclusivity
Certainty of close
• Proactively address transaction risks before they turn into
“buyer issues”
• Leverage Deloitte’s tax and accounting advisors to understand
potential deal structure options
• Evaluate trade-offs between value and complexity, including
transition services agreements
• Utilize deep buyer knowledge to engage serious bidders with limited
re-trading risks
• Commitment of senior resources throughout the entire sale process
Quarterly Update | Q2 2020 | US Divestitures 7Sources cited
Page 2:
1. Thomson ONE. https://www.thomsonone.com, accessed September 9, 2020. Data as of June 30, 2020.
2. Business Insider. “Victoria’s Secret parent L Brands plummets 27% after Sycamore tried to back out of acquiring majority stake”.
https://www.businessinsider.in/stock-market/news/victorias-secret-parent-l-brands-plummets-27-after-sycamore-tries-to-back-
out-of-acquiring-majority-stake/articleshow/75304392.cms, accessed September 3, 2020.
3. PR Newswire. “Melody Investment Advisors Acquires Wireless Towers from Uniti”.
https://www.prnewswire.com/news-releases/melody-investment-advisors-acquires-wireless-towers-from-uniti-301056993.html,
accessed September 3, 2020.
4. Defense News. “Year two post merger, L3Harris look toward $1B more in divestitures.”
https://www.defensenews.com/industry/2020/06/11/year-two-post-merger-l3harris-looks-toward-1b-more-in-divestitures/,
accessed September 3, 2020
Page 3:
1. US Bureau of Economic Analysis. https://www.bea.gov/, accessed April 15, 2020. Data as of June 30, 2020.
2. US Department of the Treasury. https://home.treasury.gov/, accessed April 15, 2020. Data as of June 30, 2020.
3. US Bureau of Labor Statistics. https://www.bls.gov/, accessed April 15, 2020. Data as of June 30, 2020.
4. S&P Capital IQ. https://www.capitaliq.com/, accessed April 15, 2020. Data as of June 30, 2020.
5. Moody’s Investors Services Inc. https://www.moodys.com/, accessed April 7, 2020. Data as of June 30, 2020.
6. S&P Capital IQ. https://www.capitaliq.com/, accessed September 3, 2020. Data as of June 30, 2020.
Page 4:
1. Thomson ONE. https://www.thomsonone.com, accessed September 3, 2020. Data as of June 30, 2020.
Undisclosed refers to transactions with enterprise values that were not made known or public.
2. Thomson ONE. https://www.thomsonone.com, accessed September 3, 2020. Data as of June 30, 2020.
3. Thomson ONE. https://www.thomsonone.com, accessed September 3, 2020. Data as of June 30, 2020.
Page 5:
1. Thomson ONE. https://www.thomsonone.com, accessed September 3, 2020. Data as of June 30, 2020.
Multiple of reported earnings.
2. Thomson ONE. https://www.thomsonone.com, accessed September 3, 2020. Data as of June 30, 2020.
3. Thomson ONE. https://www.thomsonone.com, accessed September 3, 2020. Data as of June 30, 2020.
Page 6:
1. Thomson ONE. https://www.thomsonone.com, accessed September 3, 2020. Data as of June 30, 2020.
2. Thomson ONE. https://www.thomsonone.com, accessed September 3, 2020. Data as of June 30, 2020.
Additional Note: All transaction data excludes government, government agency, and real estate company activity.
Quarterly Update | Q2 2020 | US Divestitures 8Deloitte Corporate Financae LLC (DCF)
DCF provides deal execution and lead financial advisory services to large corporate, middle market, private equity and venture capital firms.
DCF and its affiliates maintain a presence in key US financial centers.
For additional information or to find out more about how DCF can assist the deal initiation and execution process, please contact one of
our DCF executives.
Business & Financial Services Life Sciences & Healthcare Technology, Media, & Telecom
Phil Colaco – Global CEO Simon Gisby Byron Nelson
Office: Charlotte, NC Office: New York, NY Office: Dallas, TX
+1 704 333 0533 +1 212 436 2495 +1 469 417 2462
philcolaco@deloitte.com sgisby@deloitte.com bynelson@deloitte.com
James Miller Doug Bolt Mike Hakim
Office: Charlotte, NC Office: Charlotte, NC Office: Los Angeles, CA
+1 704 731 8230 +1 704 731 7219 +1 213 593 4545
jamesmiller5@deloitte.com dbolt@deloitte.com mhakim@deloitte.com
Chris Parides Newman Delany Debt & Capital Advisory
Office: Charlotte, NC Office: New York, NY John Deering
+1 704 697 5972 +1 212 436 6326 Office: Charlotte, NC
cparides@deloitte.com ndelany@deloitte.com +1 704 333 0574
jdeering@deloitte.com
Consumer & Retail General Industrials Max Hughes
Lorin DeMordaunt Will Frame Office: Dallas, TX
Office: Charlotte, NC Office: Chicago, IL +1 214 840 1558
+1 704 333 0591 +1 312 486 4458 maxhughes@deloitte.com
ldemordaunt@deloitte.com wframe@deloitte.com
ESOP Corporate Finance
Matt Preece Eric Andreozzi Lou Paone
Office: Charlotte, NC Office: Charlotte, NC Office: Charlotte, NC
+1 704 731 7186 +1 704 333 0518 +1 704 731 7202
mpreece@deloitte.com eandreozzi@deloitte.com lpaone@deloitte.com
Rory Dineen Tony Blanchard Steven Blaser
Office: Charlotte, NC Office: Chicago, IL Office: Charlotte, NC
+1 704 333 0495 +1 313 396 3738 +1 704 887 1648
rdineen@deloitte.com anblanchard@deloitte.com stblaser@deloitte.com
Nick Hansell Bill Kerkam Financial Sponsors
Office: Charlotte, NC Office: Charlotte, NC Jamie Lewin
+1 704 731 8203 +1 980 312 3613 Office: Dallas, TX
nhansell@deloitte.com wkerkam@deloitte.com +1 214 840 7057
jlewin@deloitte.com
Energy & Resources Kevan Flanigan
Keith Adams Office: Los Angeles, CA Evan Karev
Office: Atlanta, GA +1 213 688 6560 Office: New York, NY
+1 404 631 3455 keflanigan@deloitte.com +1 212 492 4670
keadams@deloitte.com evkarev@deloitte.com
Head of Western Region Head of Southwest Coverage
Garett Poston Tom Spivey
Office: Los Angeles, CA Office: Dallas, TX
+1 213 593 4544 +1 214 840 7014
gposton@deloitte.com tspivey@deloitte.com
www.investmentbanking.deloitte.com Quarterly Update | Q2 2020 | US Divestitures 9This newsletter is a periodic compilation of certain completed and announced merger and acquisition activity. Information contained in this newsletter should not be construed as a recommendation to sell or a recommendation to buy any security. Any reference to or omission of any reference to any company in this newsletter shall not be construed as a recommendation to sell, buy or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this newsletter. This newsletter is published solely for the general information of clients and friends of Deloitte Corporate Finance LLC. It does not take into account the particular investment objectives, financial situation, or needs of individual recipients. Certain transactions, including those involving early stage companies, give rise to substantial risk and are not suitable for all investors. This newsletter is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known risks, uncertainties and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this newsletter. We and our affiliates and related entities, partners, principals, directors, and employees, including persons involved in the preparation or issuance of this newsletter, may from time to time have “long” and “short” positions in, and buy or sell, the securities, or derivatives (including options) thereof, of companies mentioned herein. The companies mentioned in this newsletter may be: (i) investment banking clients of Deloitte Corporate Finance LLC; or (ii) clients of Deloitte Financial Advisory Services LLP and its related entities. The decision to include any company for mention or discussion in this newsletter is wholly unrelated to any audit or other services that Deloitte Corporate Finance LLC may provide or to any audit services or any services that any of its affiliates or related entities may provide to such company. No part of this newsletter may be copied or duplicated in any form by any means, or redistributed without the prior written consent of Deloitte Corporate Finance LLC. About Deloitte Deloitte Corporate Finance LLC (DCF), a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC) and member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), is an indirect wholly-owned subsidiary of Deloitte Financial Advisory Services LLP and affiliate of Deloitte Transactions and Business Analytics LLP. Investment banking or other services that would require registration as a broker-dealer with the SEC and membership in FINRA would be provided exclusively by DCF. For more information, visit www.investmentbanking.deloitte.com. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright © 2020 Deloitte Development LLC. All rights reserved. Designed by CoRe Creative Services. RITM0559733
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