Selling for Peanuts!

In November 2024, Just Eat Takeaway.com NV agreed to sell US food delivery service Grubhub for US$650 million, a roughly 90% discount to the price it paid to buy the business.

Many companies that spent billions on poorly timed acquisitions in recent years are now offloading those assets at knockdown prices. 

Alibaba Group Holding Ltd announced it is going to sell Chinese department-store chain Intime to a local apparel group for US$1 billion (RM4.47 billion). The price is around 30% of the company’s valuation when Alibaba bought it during the heady days of 2017. The internet giant, which has largely abandoned its acquisitive ways amid government pressure, said it will book a US$1.3 billion loss on the transaction. 

The deal came a day after BlackBerry Ltd said it would divest its Cylance endpoint security unit to software startup Arctic Wolf for US$160 million plus a small amount of stock. That’s a far cry from the US$1.4 billion BlackBerry paid when it agreed to buy the business in 2018. Under BlackBerry’s ownership, Cylance reported substantial losses and its revenue fell over 50%, according to Royal Bank of Canada analysts.  

The moves show how companies that were major acquirers during the boom times may sober up and regret those purchases. Overpayment was the inevitable byproduct of an era when competition for assets was fierce.  Zero interest rates and pandemic-fuelled deal hysteria sent valuations soaring in hype sectors. 

These divestments allow the companies to focus on shoring up their main operations at a pivotal time. Alibaba has been working to reignite growth in its Chinese e-commerce division, where it faces fierce competition from PDD Holdings Inc and ByteDance Ltd. Meanwhile, BlackBerry is trying to turn around the company by devoting more attention to its Internet of Things business as well as its secure communications platforms. 

Companies will continue to pursue divestments of acquisitions that didn’t work out, as markets are rewarding focus and punishing those that are bloated. That could provide good opportunities for cash-rich corporate buyers looking for bargains, as well as private equity firms.

Indiscipline, low interest rates, corporate hype and investment banks looking for fees, result in over-valued companies being acquired. Those who had sold benefitted while the new owners and employees are the ones left with a bad taste or severe indigestion or some other problem like IBS (Irritable Bowel Syndrome)!

Reference:

Companies that spent billions on M&A are now selling for peanuts, Ben Scent, Bloomberg, 19 December 2024