Carve-outs drive higher growth rates

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Corporates that divest selected businesses can create significant value, both for themselves and the carved-out entities these deals produce, according to a new report published today.

Professional services firm EY conducted a study of 200 transactions covering carve-outs with a deal value of £100m or more, by companies that are currently, or have in the last eight years, been a part of the FTSE 100 or FTSE 250 indices. On average, share price value increased for both the vendor parent and their carved-out entities following divestment, the study found.

The long-term value of vendors increased significantly, with average growth in share price after three years and five years of 4.2 per cent and 7.2 per cent, respectively. After five years, the average share price growth of vendors exceeded the relevant index.

Charles Honnywill, partner, divestiture advisory services at EY, said: “Divesting selected businesses allows a group to refocus its attention on its core business and drive higher rates of growth either organically or by acquisition.”