As markets begin to recover, many businesses are considering new active portfolio management strategies for structuring their operations and reshaping their portfolios. There is renewed focus on efforts to reinforce balance sheets against future market disruptions and economic anomalies, reduce costs, optimise operational efficiency, and direct the business towards achieving sustainable long-term growth.
With economic trends and regulatory changes evolving rapidly, and product lifecycles increasingly shortened, leaders are aiming for agility in their portfolios. In addition, the ESG agenda is increasingly causing businesses to reconsider their portfolios by focusing more strongly on sustainability.
Against this backdrop, a carve-out – in which a company either floats part of the business on the public market or divests it in a sale – is an increasingly attractive option for companies that want to restructure, refocus on core competencies, or adjust to major regulatory policy changes in certain sectors of the economy.
The most frequent transactions in KPMG’s study took place in financial services; however, carve-outs are not limited to certain sectors. Indeed, their prevalence across all industries points to their importance as sectors become more intertwined, regulatory efforts adjust or increase, and market disruptions and product lifecycles become more fast-paced and dynamic. Such factors are prompting an increase of strategic portfolio restructuring for companies across industries.
For the parent company, any disposal of non-core assets, whether via public listings or indeed a sale, can help maintain liquidity, increase shareholder value and unlock vital funds to reshape the business to enable sustainable growth. But unlocking the full value of non-core assets is not straightforward as they are often deeply integrated into the business.
As with any other divestment, conveying a successful equity story as part of communications to the capital markets is therefore vitally important.
In this paper, KPMG and the Edge undertook detailed empirical analysis of the results of 45 public capital market carve-outs that have taken place across the US, Europe, UK and Australia over the past five years. The ‘Dissecting Public Carve-Outs’ report focuses on public carve-outs rather than private divestments or trade sales, analysing the potential financial and performance outcomes and other aspects of these transactions. Something few other published studies have focused on.
The report reveals five key considerations that management and boards need to think about if they’re considering a carve-out within their own business.