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FMI Quarterly/March 2020/March 3, 2020

Four Steps to a Winning Divestment Strategy

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Consolidation in the construction industry has steadily increased over the past 10 years. In the utility construction segment, we’ve seen the market capitalization of the top 10 public companies grow by 65% over the past decade, with most of the growth driven by acquisition.1

As companies grow through acquisition, there will inevitably be elements of the businesses acquired that don’t align with the acquirer’s strategic focus. Occasionally, these pieces can be worth more separated from the parent company than they are embedded within a larger construction company.

Divestment remains an important part of the toolkit for a corporate development team and for executives assessing how to unlock the highest value for the company. For example, one company we worked with recently held a product distribution company inside of a large specialty construction company.

As a standalone entity, that distribution company had a multiple that was almost two times the value of the larger construction company. By divesting of the company, the owners would be able to unlock the smaller business’s value and then either distribute the cash or invest in the areas of the company where management was strategically focused.

By implementing a strategy that factors in not only growth through acquisition but also strategic divestment, executives can gain both operational and financial benefits that far outweigh a passive buy-and-hold approach.



1 Source: S&P Capital IQ, Tickers for companies included are: MDU, PWR, MTZ, DY, PRIM, ARE, GVA, AEGN, MYR, MTRX

This article was originally published September, 2017.

 

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