UK spin-offs are undersold – report

John Bakie
16 January 2013

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Corporate spin-offs could result in bargains for private equity buyers as many firms selling non-core units are focused on a speedy cash injection rather than long-term strategic objectives, according to research from Ernst & Young.

A survey by the firm also found a massive 84% of corporates are looking to accelerate their divestment plans, while a third plan to sell within two years.

Almost half of UK divestments in the past two years have been driven by a need for a rapid cash injection, rather than achieving a long-term strategic goal, resulting in around three quarters of companies that divest leaving money on the buyer's table.

While lower prices might be good news for private equity funds looking for a bargain, many businesses are failing to make their assets attractive to private equity buyers, according to Michel Driessen, operational transactions services partner at Ernst & Young.

He says many sellers fail to consider the full range of potential buyers for their assets, with just a third looking abroad, and many focused only on corporate acquirers.

"Potential sellers maximise value when they make the asset attractive to a wide range of international buyers across a broad range of sectors, including private equity," says Driessen.