Improving Market Spurs Firms To Unload Unwanted Businesses

Corporate divestors are slowly starting to turn up the heat on the sell side of the m&a market. If the uptick in prominent sell-offs that surfaced during the summer of 2003 continues and, more important, picks up its beat, that could be good news for the tepid deals market in general. A swifter pace of divestitures usually is a harbinger of a more robust overall deal flow following a slump in transactions. Although no one is ready to predict a full-blown surge in sell-offs, deal authorities are encouraged by the number of companies that are finally pulling the plug on businesses they no longer need or want, as well as the sizes of the excess properties. A consensus view is that the timing for a sale is riper than it has been in a couple of years, including suggestions of firmer selling prices. A better place for the seller Shaun Kely, a transaction services partner and divestiture expert at KPMG, says it is clear that “the deals market is better than it was 12 months” and that many of the companies with divisions and subsidiaries now on the block may have been planning to cut the cords for a long time but held back because of pricing and other soggy elements in the m&a marketplace. “There was an overarching fact that the market wasn’t particularly good to sell into,” he says. The sell-offs unveiled in the summer and early fall fit no discernible pattern as to the nature of the businesses on the block or the reasons the parents want to shed them. A sampling includes: * Safeco Corp. announced plans to sell its life insurance operations, an area epitomized by restructuring and consolidation, to concentrate on its property and casualty operations. * France-based Veolia Environment SA, a spin-off of Vivendi SA, said it would sell the consumer and commercial business of its U.S. Filter subsidiary, spearheaded by the Culligan and Everpure water and water treatment brands, to raise funds for paying down debt. * Oil giant ConocoPhillips, as part of its postmerger restructuring, agreed to sell the Circle K convenience store chain to Alimentation Couche-Tard Inc. of Canada for $821 million. * Sears, Roebuck & Co., continuing its pruning of non-core specialty businesses, reached an agreement with tire retailer TBC Corp. to sell its National Tire & Battery automotive service chain. In addition, Motorola Inc. disclosed a major restructuring to dispose of its semiconductor business via an IPO followed a spin-off of the remaining interest to shareholders. But observers who note that spin-offs and IPOs often stoke buying interest in a property marked for disposition aren’t betting against an outright sale of the unit at the end of the day. Kely, a fervent proponent of intense strategic preparation for a divestiture, believes that most of the sellers now coming to market have been mapping the plans for some time. Easier to get deals done “I think a lot of it was waiting to see what the whole market environment was for their businesses, while they determined what was core and what was non-core,” he says. “We’re seeing that it’s easier to get deals done than it was maybe 12 months ago. We’re starting to see more availability of financing. Valuations are probably more realistic, and confidence, which is a big driver, is slowly coming back. “A lot of these divestitures were contemplated as long as 12 months ago. The environment to get them done wasn’t really there. Now the environment has improved and you are starting to see them come through,” he adds. Although Kely believes that sell-off flows are turning upward, he doubts if a great boom is in the offing. “Will we see more activity? Absolutely. But it’s not so hot that there is pressure to move immediately. But in individual cases, some companies are saying this is the right time to move. I think we will continue to see an increased level of divestitures over the last 12 months.” Continuing to modulate the flow, he says, is extended buyer caution on purchase prices and intensive due diligence on both the buy and the sell sides. Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.majournal.com