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ANALYSIS: The Asset Deal Trends to Watch in 2021

Feb. 8, 2021, 3:53 PM

Asset deals are making a strong start in 2021. As of Feb. 5, $60.6 billion in currently pending and completed asset sales have been announced since the start of the new year, representing a 12% year-over-year increase in volume compared to the same period last year.

After taking a dip in 2020, asset sales are a transaction category to watch as the pandemic evolves and the associated economic fallout continues. Companies sell assets for a variety of reasons, among them to offload non-core lines of businesses, to raise cash, and to prepare for other M&A transactions.

Financial sector asset sales, the continued notable presence of private equity players among top asset purchasers, and asset sales involving consumer sector targets are themes from 2020 to have an eye on this year.

Proportionally, global asset deals lost more volume in 2020 than did the overall M&A market. Roughly $553 billion in global asset sales that are currently pending or completed were announced last year, marking a 22% year-over-year decrease in volume; whereas total pending and completed global M&A volume for 2020 ($3.5 trillion) only fell 7% from 2019 ($3.79 trillion).

When looking at 2020 asset deal volume as a percentage of all global M&A volume, however, the drop was less severe: Asset deal volume last year represented 16% of all M&A volume, as compared to 19% in 2019, representing a 15.8% drop in market share.

Financial Assets

By volume, the financial sector was the leading target sector for asset deals in 2020. Financial sector targets were parties to $250 billion in asset deals, marking a 28% year-over-year decrease in volume but still making up nearly half of all asset deal volume for the year.

Deals involving real estate investment trusts or REITs as targets, totaling $155 billion (+31% YoY), drove the majority of this financial sector volume. Asset sales involving diversified REITs (+37% YoY), office property REITs (+37% YoY), and apartments REITs (+38% YoY) as targets comprised the lion’s share of REIT asset deal volume. In contrast, hotel REITs (-30% YoY) and shopping center REITs (-.05% YoY) held on to more of their assets in 2020.

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The average deal size for REIT-target asset sales in 2020 was $81 million. The top buyers of REIT assets, ranked by deal count, were Four Corners Property Trust Inc. (35 deals, $172.3 million total volume, $4.9 million average deal size); Rexford Industrial Realty Inc. (16 deals, $1.2 billion total volume, $71.9 million average deal size); private equity’s The Blackstone Group Inc. (14 deals, $6.4 billion total volume, $457.9 million average deal size); Innovative Industrial Properties Inc. (12 deals, $174.3 million total volume, $14.5 million average deal size); and Urban Logistics REIT PLC (11 deals, $139 million total volume, $12.7 million average deal size).

Two things that the top REIT-asset buyers’ list tells us about 2020: (1) REIT asset deals came in all sizes, and (2) private equity was the top non-REIT buyer of REIT assets. Private equity’s Allianz Real Estate GmbH and KKR & Co Inc. also made the top 10 buyers’ list by deal count. And when ranked by total deal volume, four out of five of the top buyers of REIT assets in 2020 were private equity acquirers. (Note: Just because an acquirer is categorized as private equity, it doesn’t necessarily mean the assets will leave the world of REITs as a result of the transaction. Some of these private equity acquisitions may result in the properties being added to existing PE-backed REITs or being turned into new REITs.)

Private Equity Buyers & Consumer Assets

Although the overall volume of asset sales involving private equity acquirers in 2020 went down by 29% compared to the prior year, private equity asset purchases across all sectors still represented a notable 15% of all asset deal volume last year (compared with 19% in 2019). And private equity firms nearly swept the top buyers’ rankings, both by deal count and deal volume, for all asset deals. It’s safe to expect that private equity will continue to have a visible role as an asset buyer in 2021.

Consistent with the overall sector performance discussed above, private equity acquirers purchased the highest volume of assets in the financial sector last year ($46.5 billion). But the only sector that saw a year-over-year increase in asset purchases by private equity in 2020 was the consumer, non-cyclical sector, boosted by deals like the $2.5 billion Coty Inc. – KKR & Co. beauty unit deal and the $3 billion Anheuser-Busch InBev SA Apollo Global Management Inc. metal containers deal.

Regardless of private equity involvement, asset sales by consumer, non-cyclicals is a general trend we are already seeing continue into 2021, with three of the 10 highest-value deals announced so far this year involving targets in this sector: the $6.5 billion Walgreens Boots Alliance Inc.AmerisourceBergen Corp. pharmaceutical wholesale deal, the $3.9 billion Petroliam Nasional Bhd. Lonza Group AG chemicals deal, and the $1.5 billion Shiseido Co. CVC Capital Partners personal care deal.

PetroChina Mega Asset Deal

It would be remiss to discuss 2020 asset deals and not mention the one mega asset deal that had the highest deal value of any asset deal currently pending or completed announced last year, and that single-handedly caused an unusual spike in asset sale volume for the energy sector last year: The $48 billion PetroChina – PipeChina pipeline deal, in which China’s state-owned PetroChina sold major oil and gas and storage facilities to China Oil & Gas Pipeline Network Corp. (PipeChina). Mega asset deals like this one could be another potential trend to look for in 2021.

With assistance from Jacquelyn Palmer.

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