Divestitures hit record levels

Contact: Scott Denne

Buyers seeking growth sent tech M&A surging to near-record levels last year. Many sellers were of a similar mindset as enterprise technology companies shed lagging units with an eye on expanding the topline of their core businesses. That trend pushed divestitures to record levels in 2016. According to 451 Research’s M&A KnowledgeBase, divestitures by public companies hit $70bn, capping off five consecutive years of growth in the category.

Sales of Hewlett Packard Enterprise business units (software and IT services) captured the top two spots for the year as it divested those shrinking assets to focus on expanding its IT infrastructure business. HPE wasn’t alone. EMC sold its content software business to OpenText, which itself bought a pair of software assets from HP Inc. Strategics weren’t the only buyers – private equity (PE) firms played a considerable role in bolstering the amount of divestitures.

PE shops enabled Intel to shed its unfortunate McAfee purchase, helped HPE sell another, smaller subsidiary and assisted SunGard in divesting its government and education business in the wake of its own sale to FIS. Those deals and others drove PE spending on public company divestitures past $16bn, a 59% jump from the previous record set a year earlier. Much like overall PE spending last year, firms were more willing to ink large transactions when buying struggling business units. There were five such PE acquisitions valued at or above $500m, surpassing the previous record of three.

The divestitures announced last month (by PE firms or otherwise) don’t indicate that the record levels of such deals will continue – there was $1.6bn worth of public company divestitures in January. However, there’s still a willing pool of buyers, should more tech businesses look to unload underperforming and non-core assets. The 451 Research Tech Banking Outlook Survey anticipates abnormally high levels of PE activity coming in 2017. In that December survey, 54% of bankers said the value of their PE pipelines has increased, beating out the number (51%) who said their overall pipelines grew – the first time in that survey when more respondents anticipated growth in PE deals than in overall M&A.

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