December 27, 2012 2:56 pm

UK groups look to asset sales for boost

Nine out of 10 midsized UK companies plan to sell off parts of their businesses over the next three years as they look to streamline or refocus operations and give their balance sheets a fillip.

According to a survey by Deloitte, more than 90 per cent of FTSE 250 groups and similarly-sized private companies will be divesting at least one business unit between now and 2016, while nearly half intend to go further, with at least three divisions set to be sold.

The rate of divestitures is forecast to hold steady from the past three years, but the motivation behind sales is shifting, said Dan Beanland, a partner in the consultancy’s corporate finance unit.

In the immediate aftermath of the financial crisis, from 2009 through 2012, companies were “taking remedial action to shore up their finances”, with one in five citing their financial position as the primary reason for a divestment.

But the coming years’ sales are more likely to be driven by strategic planning, Mr Beanland said.

The survey of 40 companies suggested three sectors – financial services, consumer goods and oil and gas – were set to see the most divestment activity. Banks would be seeking to drive up liquidity to comply with new regulations, consumer groups acting to cope with the weak European economy, and oil and gas groups looking for ways out of lower-margin businesses such as petrol stations in favour of more lucrative exploration and production operations.

Recent disposals by midsized UK groups include transport company FirstGroup’s paring down of its UK bus business, Senior’s offloading off a unit that supplies the nuclear and construction industries as it focuses on commercial aircraft parts, and Premier Foods’ bank-mandated sell-off of assets, which saw the Branston pickle brand snapped up by a Japanese food company in October.

Deloitte also found that during the past three years, just one in five of the business units being sold went to a private equity buyers. Mr Beanland argued companies should be looking to private equity not just as potential purchasers but as models for strategic thinking, given that many corporate managers admitted they only considered selling business units once those divisions were struggling.

“Corporates need to look more closely at the private equity model, where exit planning is incorporated into their business plan from the start,” he said.

But even if companies work harder to court private equity, those groups might be wary of buying “non-core” divisions, having had trouble in recent years making their own exits from deals done during the credit boom.

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