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Portfolio Reviews and Divestitures Create Deal Flow for the Mid-Market

These practices are expected to be at the forefront of both corporate and private equity (PE) firms' agendas, representing key elements of effective leadership and astute decision-making.

Underscores the significance of portfolio assessments and divestment strategies in today's business landscape. These practices are expected to be at the forefront of both corporate and private equity (PE) firms' agendas, representing key elements of effective leadership and astute decision-making. They play a pivotal role in identifying critical strategic gaps, whether in terms of capabilities or products, which can be addressed through strategic acquisitions. Additionally, portfolio reviews help in pinpointing non-core or underperforming assets, offering opportunities for divestment and enabling businesses to optimize their financial health. Three primary factors will shape these decisions:

  1. Capital Constraints: In an environment marked by capital limitations, there will be a heightened focus on divestitures. Companies will seek ways to deleverage their balance sheets, unlock capital for reinvestment, or, in the case of private equity firms, return capital to their investors.
  2. The Technology Revolution: The ever-increasing costs associated with technology transformations will necessitate tough choices. Companies will be compelled to intensify their efforts in areas where they have a competitive advantage, shedding peripheral, nice-to-have businesses and those vulnerable to disintermediation.
  3. Geopolitical and Regulatory Influences: Geopolitical or regulatory dynamics may exert pressure on companies to divest assets in challenging markets or relinquish assets that demand an inordinate amount of management attention.

According to a recent study by PwC titled "The Power of Portfolio Renewal and the Value in Divestitures," companies that proactively evaluate their portfolios and execute divestitures through timely decision-making processes are more likely to create value. Over the past two years, acquisitions have significantly outnumbered divestitures by a ratio of more than four to one. This suggests that many assets within corporate portfolios today are strong candidates for divestment, offering attractive opportunities for potential buyers in the mid-market.

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