Mulling M&A? Buying Carve-Outs Better Than Selling, Willis Says

(Bloomberg) -- Buying carved-out assets from competitors has generated better returns this year than selling them, according to advisory firm Willis Towers Watson Plc.

Companies that bought assets being divested by rivals in the first half of the year outperformed their peer groups by an average of 1 percentage point, Willis Towers Watson said in a report prepared with London’s Cass Business School. While buying non-core businesses from other firms might be a boon for the buyer, sellers are missing out, according to the report.

“While divestitures lose value across the board, the acquisition of a divested asset, as well as spinoffs, have an outperforming effect,” Willis wrote in the report.

Among companies that sold assets in the first half of 2019, 63% significantly underperform their MSCI index, with an average underperformance of minus 7 percentage points. The higher the value of the divestment in relation to market capitalization, the more stocks dropped in the aftermath of a deal.

The exceptions are spinoffs in which a new listed company is carved out. The analysis focused on global public sellers, while excluding private equity deals.

“Most companies are set up to buy assets, not sell them, which means decisions to sell are often made at the wrong time or in the wrong manner,” Jana Mercereau, Willis’s head of corporate mergers and acquisitions for Great Britain, said in a statement. “Such mistakes are expensive.”

High-profile divestitures in Europe this year have included Nestle SA’s proposed sale of its skincare business for 10.2 billion Swiss francs ($10.3 billion). This month, Elanco Animal Health Inc. agreed to buy Bayer AG’s animal-health unit in a $7.6 billion deal.

To contact the reporter on this story: Jan-Henrik Förster in London at jforster20@bloomberg.net

To contact the editors responsible for this story: Dinesh Nair at dnair5@bloomberg.net, Michael Hytha, Ben Scent

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