Poorly Timed Acquisitions

Companies that spent billions on poorly timed acquisitions in recent years are now offloading those assets at knockdown prices. Overpayment was the inevitable byproduct of an era when competition for assets was fierce. 

Years of zero interest rates and pandemic-fuelled deal hysteria sent valuations soaring in hype sectors, often detached from fundamentals. Now, as the zeitgeist demands a sober look in the mirror, companies are trimming excess, dumping underperformers, and opting for brutal honesty over sunk-cost fantasy — even if it means a multibillion-dollar haircut.

Intime - Alibaba Group Holding Ltd announced on Tuesday it’s 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.

Cyclance - 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%.

Grubhub - The moves show how companies that were major acquirers during the boom times may sober up and regret those purchases only a few years later. Just last month, 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 at the height. 

companies didn’t properly assess synergies and the expected benefits of some deals were overestimated. Now may be a good time to find buyers for these assets as the merger and acquisition (M&A) market has become active again. Overall M&A volumes have risen 16% this year to US$3.2 trillion. 

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.

Reopening The Gates - Just Eat Takeaway claimed that the market has changed since it bought Grubhub, with competition increasing and sector valuations falling. The sale to Wonder Group Inc represents the “most attractive outcome” and “reflects the current trajectory of the business.

BlackBerry said it’s “incredibly pleased” with the outcome for Cylance, which will help profitability and let it focus on the growth engines in its portfolio.

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