In the current M&A environment, strategic divestitures are emerging as a prominent trend, primarily driven by companies’ need to streamline operations and focus on core competencies. A divestiture occurs when a company sells off a portion of its business, such as a division, product line or asset that it considers non-essential to its core operations. Across various sectors, companies are increasingly divesting non-core assets to strengthen their financial positions and find value within non-essential operations. This trend has created compelling acquisition opportunities for both strategic buyers and private equity (PE) firms.
Strategic buyers often find that divested assets can provide an expedited pathway to expand geographic reach, enhance product lines or strengthen specific capabilities. Acquiring non-core assets from larger corporations can be a cost-effective way to acquire specialized technology, intellectual property, or customer bases that would otherwise take significant time and investment to develop internally. Additionally, with established infrastructure and synergies, strategic acquirers can integrate these assets more smoothly, extracting greater value and achieving operational efficiencies.
PE firms are increasingly drawn to divestitures, as they represent a versatile acquisition opportunity. When a divested asset closely aligns with an existing portfolio company’s capabilities, customer base or product offerings, PE groups will often structure a deal as a bolt-on acquisition. The synergies created through these acquisitions can enhance operational efficiencies and increase the financial profile of both the acquired asset and the existing platform. However, situations also arise where the divested asset operates independently with its own management, infrastructure and operational processes. In this scenario, divestitures can be structured as platform investments, considering their ability to run autonomously without a parent company’s oversight and support.
Overall, strategic divestitures are becoming a key fixture of the 2024 M&A market, with a notable increase in the number and variety of them. Through the first half of 2024, divestiture transaction volumes increased by 39.7 percent year-over-year. Additionally, divestitures made up 24.5 percent of total M&A activity in Q2 2024, a 3.7 percent increase from the 20.8 percent reported in Q2 2023. These types of transactions present not only a cost-effective path to expansion, but also a means to position companies for future growth. As the M&A economic landscape continues to evolve, the appeal of acquiring divested assets will likely remain strong.
M&A Market Activity
In October 2024, U.S. deal volume experienced a slight decline, down 2.6 percent compared to October 2023. This minor drop in the number of deals reflects a cautious market environment. However, through October 2024, total deal value has demonstrated robust growth, rising 14.4 percent year-over-year.
The Pittsburgh M&A market experienced a 7.1 percent increase in activity in October 2024 compared to the same period in 2023. This past month saw acquisitions by prominent Pittsburgh-based companies, underscoring the region’s dynamic and active deal-making landscape.
Deal of the Month
AMETEK Inc. is a manufacturer of electronic instruments and electromechanical devices, offering advanced instruments for the process, aerospace, power, and industrial markets. On October 31, 2024, AMETEK announced the acquisition of Virtek Vision International, a leading provider of advanced laser-based projection and inspection systems. Virtek focuses on designing and manufacturing cutting-edge 3D laser projectors, smart cameras, and quality control inspection systems, all driven by AI-powered software and algorithms. Virtek will become part of AMETEK’s Electronic Instruments Group, which specializes in advanced solutions for analytical, monitoring, testing, calibration, and display instrumentation.
Sources: Company websites, PitchBook, S&P Capital IQ, and Deloitte
Carter Hatina is an Associate with MelCap Partners, LLC, a middle-market investment banking advisory firm. For more information on MelCap Partners, please visit www.melcap.com or email [email protected].
