PE firms can use our Divestiture Sourcing Framework to find their next opportunities. Happy hunting.
It’s a good time for private equity buyers.
CB Insights has tracked 1,100+ corporate divestitures and spin-outs over the last 12 months — and the pace is picking up.
This creates a ripe opportunity for financial sponsors to find value in larger corporations that they can unlock.
Below, we’ll dive into a draft framework we’ve been using to help our PE clients identify potential divestiture candidates.
But first, here’s a sampling of recent divestitures (to corporations and financial sponsors).
- Walmart has divested 4 businesses this year — including ELOQUII, Bonobos, Art.com, and Moosejaw — and they all went to strategic buyers
- Allen & Overy spun out its legal risk management business to Inflexion and Endicott Capital
- Ascential sold Flywheel Digital to Omnicom Group for $900M
- LKQ Corporation divested its GSF Car Parts business to PE fund Epiris
- Pharma co Viatris sold business units to several buyers for a total of $3.4B
- TPG platform company Integrated Media Company acquired Toon Boom for $112M from Corus Entertainment
- UPS acquired Happy Returns from PayPal
- TPG acquired a majority stake in Elite, a legal tech product, from Thomson Reuters
This is just a handful, but as you can see, companies across all industries are looking at shedding non-core assets in the face of forces like market uncertainty and investor pressure.
So how can PE firms identify companies that might be open to divesting or spinning off businesses?
Below is a draft of the Divestiture Sourcing Framework we’ve been using with PE clients.
It’s pretty simple and elegant, and it has been good at surfacing interesting ideas for firms.
Here’s how to read it.
Historical M&A activity (x-axis): We look at the number of M&A deals a company has made in the last 3 to 5 years. More is better. We have the data on CB Insights, and PE funds can zoom in on companies based on sector or geo preferences.
Organizational flux/volatility (y-axis): You might think of this axis as a score for “chaoticness.” It doesn’t represent a single metric like M&A activity. Instead, it takes several factors into account, including:
- Companies with underperforming stock prices
- Companies with activist investors circling (or involved)
- Companies with leadership changes at the top (new CEOs often want to shed stuff their predecessor did)
- Companies in sectors where competitive intensity has accelerated
- Companies that may have entered new markets (businesses, geos, etc.) that require resources and can atomize energy
Companies high on both axes mark harvest opportunities for PE funds.
Of course, the upper-left and lower-right quadrants also offer opportunities.
If you want killer data to help your PE sourcing efforts, get in touch with our team.