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Companies that spent billions poorly timed acquisitions in recent years, they are now offloading these assets at knockdown prices.

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Alibaba Group Holding Ltd. announced Tuesday that it will sell Chinese department store chain Intime to a local clothing group for $1 billion. The price represents about 30 percent of the company’s valuation when Alibaba bought it in the heady days of 2017. The internet giant, which largely abandoned its acquisition methods under government pressure , said it would record a loss of $1.3 billion on the transaction.

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The agreement came a day after BlackBerry Ltd. announced it would spin off its Cylance endpoint security unit to software startup Arctic Wolf for $160 million plus a small amount of inventory. That’s a far cry from the $1.4 billion BlackBerry paid when it agreed to buy the company in 2018. Under BlackBerry’s ownership, Cylance posted substantial losses and its revenue fell more than 50%. , according to analysts at the Royal Bank of Canada.

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These developments show how companies that were big acquirers during boom times can sober up and regret those purchases only a few years later. Last month, Just Eat Takeaway.com NV agreed to sell U.S. food delivery service Grubhub for $650 million, a discount of about 90% from the price paid to buy the company at the height of the Covid pandemic.

Excessive payments were the inevitable consequence of an era when competition for assets was fierce, according to Oliver Scharping, a portfolio manager at Berenberg.

“Years of zero interest rates and pandemic-fueled transactional hysteria has driven up valuations in trendy sectors, often detached from fundamentals,” Scharping said. “Now, as the zeitgeist demands a sober look in the mirror, companies are cutting back on excess, ditching underperformers, and opting for brutal honesty rather than sunk cost fantasy – even if it means a cut multi-billion dollar hair collection.”

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Valeriya Vitkova, a senior lecturer at Bayes Business School at City University London, said companies had not properly assessed synergies and the expected benefits of some deals were overestimated.

Now may be the right time to find buyers for these assets, as the M&A market has become active again, Vitkova said. Overall M&A volumes rose 16% this year to $3.2 trillion, according to data compiled by Bloomberg, and bankers expect the pace to pick up next year.

These divestments allow companies to focus on strengthening their core operations at a pivotal time. Alibaba is working to revive growth in its Chinese e-commerce division, where it faces stiff competition from PDD Holdings Inc. and ByteDance Ltd. Meanwhile, BlackBerry Chief Executive John Giamatteo is trying to turn the company around by paying more attention to its business. Internet of Things company as well as its secure communications platforms.

Reopening of the doors

A representative for Just Eat Takeaway said the market had changed since the Grubhub purchase, with increasing competition and falling industry valuations. The sale to Wonder Group Inc. represents the “most attractive outcome” and “reflects the company’s current trajectory,” the representative said. Alibaba did not immediately respond to questions.

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A BlackBerry spokesperson said it was “incredibly pleased” with the outcome for Cylance, which will help drive profitability and allow it to focus on the growth drivers of its portfolio. Investors also appear happy, with BlackBerry shares jumping 15% on the day the deal was announced, the biggest gain since August 2023.

Companies will continue to divest from unsuccessful acquisitions, as markets reward concentration and punish bloated companies, Berenberg’s Scharping said. This could provide good opportunities for cash-rich business buyers looking for bargains, as well as private equity companies According to data compiled by Bloomberg, that’s $1.6 trillion worth of dry powder.

“The price review has reopened the doors for disciplined buyers to take action,” Scharping said. “We see opportunists taking advantage of healthier balance sheets and tighter focus to acquire discounted assets with long-term upside potential.”

—With help from James Boxell, Luz Ding, Amy Thomson, Monique Mulima, Adam Blenford and Aaron Kirchfeld.

Bloomberg.com

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