Companies that invested heavily in M&A are now selling at a fraction of their value
In recent news, companies that made big investments in acquisitions in the past are now selling off those assets at much lower prices.
Alibaba Group Holding Ltd. recently announced that it will sell the Chinese department-store chain Intime to a local apparel group for $1 billion. This sale represents just 30% of the company’s valuation back in 2017 when Alibaba first acquired it. As a result, Alibaba will be taking a loss of $1.3 billion on this deal.
Similarly, BlackBerry Ltd. also recently made moves to divest its Cylance endpoint security unit to Arctic Wolf for $160 million plus some stock. This is significantly less than the $1.4 billion BlackBerry originally paid for the business in 2018. While under BlackBerry ownership, Cylance experienced losses and a decline in revenue.
These actions demonstrate how companies that were active acquirers during favorable times may now be reconsidering their past purchases. Just Eat Takeaway.com NV, for example, recently agreed to sell Grubhub for $650 million, a steep 90% discount compared to what it paid amidst the Covid pandemic.
Experts suggest that the overpayment for these assets was a result of high competition for acquisitions when valuations were inflated. The current market climate is prompting companies to reassess their portfolios, cut losses, and focus on core operations as they look to the future.
While these divestments may indicate a shift in strategy, they also present opportunities for cash-rich corporate buyers and private equity firms to acquire assets at discounted prices. Overall, the M&A market is showing signs of renewed activity, with analysts expecting an increase in deal-making next year.
In conclusion, companies are streamlining their operations by shedding underperforming assets acquired during more optimistic times. This allows them to refocus on key areas of growth and profitability as they navigate the evolving business landscape.
