London, 21 December 2022 – AURELIUS announces the results of its 8th annual AURELIUS European Corporate Carve-Out Survey. The survey canvasses corporate and advisory professionals to reveal year-on-year trends in the market and predictions of future trends. This year’s edition was conducted between 17 November and 12 December 2022, gathering insights after a volatile period since the last survey was conducted, during which corporates have experienced a potent cocktail of inflationary pressures, rising interest rates, and geopolitical shocks.

The survey reveals that 78% of respondents expect the volume of corporates divesting non-core European and UK businesses in 2023 to increase year over year (YoY). According to participants, a key factor driving this activity will be businesses attempting to refocus on core operations as a consequence of sustained macroeconomic headwinds. However, despite anticipation of robust levels of divestment activity, the survey revealed a lack of consensus regarding whether the high levels of overall M&A activity witnessed in 2022 will be continued into 2023.

These findings align with an overall picture of a stuttering global economy and weakening corporate confidence. Furthermore, in line with the findings of the previous AURELIUS Corporate Carve-Out Survey, conducted shortly after the Russian invasion of Ukraine, geopolitical factors will continue to be a core consideration for corporates seeking to divest non-core businesses and investors seeking value in European markets in 2023.

In 2022, AURELIUS has completed various successful corporate carve-outs from vendors including Orica, McKesson, Saint Gobain, JD Sports, Sappi and Agfa-Geveart.

KEY FINDINGS:

The level of global corporates divesting non-core businesses in 2023 is likely to increase relative to 2022.

• 78% of respondents expect that the number of European and UK corporates looking to sell non-core European and UK businesses in 2023 will increase YoY.
• 63% of respondents anticipate that the number of non-European corporates wanting to sell non-core European and UK businesses will increase in 2023 YoY.

An impending global recession will accelerate plans to divest non-core businesses by European and UK corporates driven in large part by the need to refocus on core operations.

• 71% of respondents agreed that an expected global recession will accelerate the plans of European and UK corporates to divest non-core businesses in 2023.
• 84% of respondents believe that a need to refocus on core operations will be a key driver of divestment activity, with 45% of respondents also selecting the need to reduce debt burdens and 43% selecting the need to reorientate a business from a weak market position as key drivers.

As the war in Ukraine continues and global trade grows increasingly fraught, geopolitical uncertainty will be a crucial factor in driving global corporates to sell non-core European businesses in 2023.

• 47% of respondents cited geopolitical uncertainty in the operating region as a driver of divestment of non-core European businesses by non-European corporates.
• And 67% identified geopolitical uncertainty as the factor that will have the largest impact on corporate divestment activity in 2023.

There is no consensus as to whether the high levels of M&A activity seen in 2022 will be continued in 2023.

• 46% of respondents agreed that high levels of M&A activity seen in 2022 will continue into 2023, with 42% disagreeing and 12% neither agreeing nor disagreeing.

Matthias Täubl, CEO of AURELIUS Equity Opportunities, said: “As the collective insight of our investment and advisory network has previously shown, refocusing on core operations is a key driver of divestment activity in Europe and the UK. As the Ukraine War continues and the resulting energy crisis takes hold across the continent, it is unsurprising that respondents continue to regard geopolitical uncertainty as a vital factor when analysing why businesses will seek to streamline operations. It will be intriguing to witness whether economic conditions stabilise and the effect this will have on divestment activity in the new year.”

Tristan Nagler, Partner at AURELIUS, added: “These findings indicate that whilst sustained macroeconomic headwinds are likely to suppress overall M&A activity levels compared to 2022, levels of corporate divestment are set to be sustained into the New Year. Furthermore, the survey confirms what has been a perennial finding of previous surveys: divestment activity will be driven by businesses wanting to redirect focus on key business lines. However, as noted by the survey’s respondents, the increasingly gloomy economic picture will likely precipitate a lowering of valuations, increasingly complex due diligence processes, and a shrinking of financing options available to investors.”

FULL REPORT SUMMARY:

• 78% of respondents expect the number of European and UK corporates looking to sell non-core European and UK businesses in 2023 to increase YoY, with 14% expecting it to decrease and 8% expecting it to stay the same.
• Expectations are slightly more split regarding sales of non-core assets by non-European corporates, with 63% of respondents expecting the number of corporates from outside Europe looking to sell non-core European and UK businesses in 2023 to increase YoY, with 10% expecting it to decrease, and 28% expecting it to stay the same.
• 83% of respondents expect the industrials market segment to see the most sales of non-core businesses in 2023.
• An overwhelming majority (73%) of those surveyed expect an impending global recession to increase the volume of non-core divestment activity by European and UK corporates.
• The survey revealed that the DACH region, the UK, and France are the geographies respondents anticipate will see the most disposal of non-core businesses in 2023, with a 75%, 67%, and 35% selection rate, respectively.
• 33% of respondents expect corporates with annual revenues of between EUR 1.0 bn – EUR 5.0 bn to be the most likely bracket to sell non-core businesses in 2023.
• Turnaround / special opportunities investors are expected to be the most active buyers in the market for corporate divestments, with 33% of respondents selecting this option, 25% selecting trade / corporate buyers and 14% selecting traditional financial sponsors.
• The complexity of delivering the carve-out (71%), matching vendor’s value expectations (63%), and financing difficulties (59%) were the most selected factors as being barriers to the completion of a successful divestment.
• Geopolitical uncertainty (67%), reducing complexity to focus on core strategy (59%), and high corporate debt levels were selected as the factors that will have the largest impact on divestment activity in 2023.
• 39% of respondents expect that ESG considerations will have a marginal influence on M&A activity in 2023.
• 46% of respondents agreed that high levels of M&A activity seen in 2022 will continue into 2023, with 42% disagreeing and 12% neither agreeing nor disagreeing.
• 71% of respondents agreed that credit market stability will be key in determining corporate carve-out activity in 2023, with 18% disagreeing and 12% neither agreeing nor disagreeing.