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Are shareholders being short-changed by private equity deals?
On 25 February Glasgow engineer Weir Group (WEIR) became the latest company to do a deal with private equity, selling its flow control business to First Reserve for £275m.
However new research suggests companies that sell unwanted parts of their business are likely to get a better price on average when an industry peer is the buyer.
This is the finding of a study by corporate advisor Willis Towers Watson, which chewed through global data of more than 5,500
deals struck since 2010.
The research concludes that a company’s unique insight into the assets it is selling gives them an advantage that they do not always get when negotiating a sale to a private equity investor.
In contrast, doing deals is part of the bread and butter of private equity firms, which typically have buyout teams with deeper experience and M&A expertise, allowing them to ‘negotiate harder in order to optimise value’.
But while divestitures are seen as crucial to the long-term strategy and value creation of many companies, most still get it wrong.
‘Our data shows sellers continuing to struggle to create shareholder value from deals, as investors punish companies whose strategies and execution they disapprove of,’ says Willis Towers Watson.