Financial sponsors looking for their slice of a booming M&A market might pause before dialing up conglomerate dealmakers. A recent EY Global Corporate Divestment Study adds more data to a shifting picture on company divestitures. The consultancy’s global survey of over 1,000 senior executives, administered from January to March, found that 79 percent of respondents didn’t hit their desired valuation on their most recent divest, while another 56 percent said the asset sale did not provide the expected re-rating in the valuation of the remaining company. Stake sales might be a ticket to assuage weary conglomerates of persistent valuation worries.

The survey data alone could be read as another cautionary Covid dealmaking tale. Pandemic-battered conglomerates slimmed down out of distress, earning fire-sale proceeds that failed to compensate for investor wariness over flagging business performance.

How to help companies not “overlearn” from precedent deals? EY offers novel takeaways for financial sponsors on the opposite side of the negotiating table. Lesson #1? An understandable hesitancy from sellers might be offset by staged exits. The most common strategic benefits for companies post-divestiture are an improved credit rating or access to capital (53 percent of respondents) and clearer capital allocation decisions (48 percent). That leads EY to predict stake sales could be a welcome solution for hesitant sellers. A staged exit removes balance sheet liabilities, provides an influx of cash, and gives sellers upside in the event of a shift in the business cycle. 

Industries particularly pitched toward a changing economic environment include infrastructure and real estate, according to a macroeconomic analysis released by KKR earlier this week. Could companies in these sectors be particularly amenable to stake sales? KKR sees real interest rates remaining low despite a gradual rise in nominal rates, which historically plays well for those sectors. 

Another sweet spot for staged exits could be sectors exposed to Millenials’ transition to the “nesting” phase of life. Soon-to-be and newly 30-somethings are a cohort 68 million strong in the US (800 million in Asia), the KKR report says. That could mean targets with home buying and family spending exposure could see demographic upside for years to come. See today’s announcement that Hellman & Friedman will acquire home decor retailer At Home Group for $2.8 billion.

Rare in the macroeconomic analysis are references to technology, potentially making clean acquisitions in the space a cinch, with a significant caveat: “The reality is that Technology is no longer a distinct sector; rather, it is now woven through every industry in which we invest, a backdrop that creates an attractive environment to back long-term champions of innovation.”

Carveouts this year could therefore look very different from Dell Technologies’ (NYSE: DELL) $4 billion sale of its cloud services provider Boomi to Francisco Partners announced last week. 

Private equity pitching a staged exit could buoy acquisition chances opposite sellers who have been burned by recent divestiture valuations. And for those who find the bid-ask spread too great to bridge on a given deal, the survey does provide some optimism. As many as 28 percent of sellers used proceeds to make another acquisition.