Cheap credit and the move to cloud computing are among the factors, according to PricewaterhouseCoopers
A number of signs suggest that next year will see a surge in tech companies selling off assets and product lines for both financial and strategic reasons, according to a recent report by consulting firm PricewaterhouseCoopers.
“PwC has witnessed an increase in client discussions related to divestiture planning,” he report states. “In addition, in a polling conducted of 30 percent of the Fortune 1000 technology companies, approximately 75 percent of these businesses indicated they expect to engage in divestiture activity in the next 12 months.”
There are several reasons why tech companies seek to unload parts of their operations, according to the report.
For example, a company that has ventured into adjacent product areas may wish to return to its core markets, the report states. Tech companies might also sell assets in order to fund higher priority projects.
In other cases, a divestiture may be “mandatory, such as when significant acquisitions are approved by U.S. governing bodies (e.g., the Department of Justice) upon condition of divesting certain assets post acquisition,” the report states.
But a more general reason to expect an uptick is divestitures is the long run of consolidation seen in the tech industry over the past decade: “This period of inorganic growth and expansion has masked the need for systematic reassessment of products and services of acquired companies.”
Broad shifts in the tech industry, such as the move to cloud-based computing services and the consumerization of IT, are other influencing factors behind the coming divestiture wave, according to the report.
Low interest rates for borrowing will also help spark deals: “Tech-focused private equity firms are in a position to buy up divestiture candidates so long as valuation expectations from would-be sellers dont hamper expected returns.”
If the report’s predictions come true, there would be implications for IT organizations as products they use change hands, leading to potential uncertainty over road maps, pricing, contracts and other factors.