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From BP and Centrica, to Unilever and Nestlé, multinationals are accelerating the sale of noncore assets as they look to shore up their balance sheets and pay down debt amid the pandemic.
The coronavirus pandemic is forcing companies to reassess their core divisions and shift focus to higher-growth areas, say bankers and mergers and acquisitions lawyers.
“Crises, like near death experiences, focus the mind in a way that is not always possible during a booming economy,” said Frank Aquila, global head of M&A at international law firm Sullivan & Cromwell. “So whenever there is an economic downturn, the seemingly difficult decisions become easy because they become obvious. An economic downturn precipitates accelerated Darwinism, a business must adapt quickly to survive,” he added.
So far this year, companies globally have sold 8,895 noncore assets worth a total of $391 billion, according to financial data provider Refinitiv. That compares to 11,294 asset sales worth almost $415 billion for the same period in 2019.
While the numbers are still low — amid a wider slump in overall M&A — bankers say conversations about divestments among executive teams are picking up, as they look to divert resources to core activities and pay off debt.
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––> You may also want to read the FT’s “Megadeals lead M&A revival as big companies bulk up“.
An excerpt here: “A series of blockbuster deals has led a resurgence in M&A activity since the start of July, with companies rushing to prepare themselves for the recession and dusting off deals that were shelved because of the pandemic. Eight deals of more than $10bn have been signed in the past six weeks, according to Refinitiv data, making it the fastest start to the second half for megadeals since 2007 when there was an M&A boom before the financial crisis. The list of deals includes the $21bn sale of Marathon Petroleum’s Speedway petrol stations business to Seven & i Holdings, the Japanese owner of the 7-Eleven convenience store chain. It also includes Analog Devices’ $20bn deal to buy rival chipmaker Maxim Integrated Products.
“This is pretty extraordinary with respect to how this bounceback has happened,” said Michael Carr, co-head of global M&A at Goldman Sachs. The coronavirus pandemic brought a six-year-long dealmaking boom to a halt. Corporate leaders put transactions on hold to concentrate on shoring up operations, while activist investors kept a low profile in fear of a backlash if they pushed for changes in the midst of a health crisis. As share prices have recovered, many of those deals contemplated earlier this year are back on track. Monthly Refinitiv data show June and July each registered more than $300bn in overall M&A activity, compared with $100bn in April and $130bn in May.”
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