In the sections that follow, we examine how corporate dealmakers can best seize acquisition and divestiture opportunities in the current environment.

Pursuing Acquisitions in Leaner Times Requires Flexibility

Although market volatility in recent times has impeded dealmaking overall, lower valuations have made some companies attractive acquisition targets, potentially at bargain prices. Even so, the shrinking accessibility of funds for acquisition financing creates difficulties for prospective buyers. Addressing these challenges requires considering alternative dealmaking strategies beyond the typical 100% acquisition. Five options stand out among the alternatives that expert dealmakers consider in this area.

Equity Financing. One viable route, akin to the approach that some PE firms currently take, involves financing the deal through equity, with limited or no debt. This option can be particularly attractive for companies that have substantial cash reserves. Our research shows that many companies are in this position; for instance, as of the second quarter of 2023, companies in the S&P Global 1200 (excluding financial institutions) held more than $3.1 trillion. Leveraging their robust financial position, cash-rich companies can use their own resources to execute transactions. To optimize returns, they might later explore refinancing opportunities, taking advantage of improved debt financing conditions when the market shifts.

In 2019, Cisco Systems announced its intention to acquire Acacia Communications, a technology company specializing in optical networking, for approximately $4.5 billion. Cisco financed the acquisition with cash. It later announced its intention to raise debt to refinance the acquisition-related costs and maintain its financial flexibility.

Partial Stake or Staggered Acquisition. Another strategic avenue is to acquire a minority stake initially, with the expectation of buying the remaining shares later. Such a phased approach permits a gradual acquisition while effectively managing financial constraints and gaining initial influence over the target. This also has the advantage of allowing the buyer to dip a toe in the water before fully committing, which is an especially sound strategy when acquiring startups.

Buying a minority stake is particularly useful when the prime motivation for the deal is to gain near-term access to capabilities. If outright control is essential for long-term success, dealmakers should ensure that they have clear pathways to securing a majority position—for example, through call options or a right of first offer. Such an approach helps them avoid getting stuck with a minority stake that does not offer adequate control over the target.

An example is Alibaba’s 2017 investment in Sun Art Retail Group, a leading Chinese hypermarket and supermarket operator. Alibaba Group initially acquired a 36% stake as a strategic move aimed at integrating online and offline retail experiences. Then, in 2020, Alibaba announced plans to increase its stake to approximately 72%, further solidifying its presence in the retail sector.

Opportunistic Strategies. Economic downturns occasionally offer dealmakers the opportunity to acquire assets at discounted valuations, especially in instances where targets are financially strained or have already depleted their cash reserves. Typically, however, the bargain price reflects the higher risks associated with buying distressed companies.

This makes it especially important for buyers to have a clear understanding of the target’s underlying prospects. Ideally, they should aim to acquire only the viable business units via a carve-out. In addition, to account for any unexpected downsides, they should have adequate cash reserves to finance any additional capital requirements—even if the acquisition cost is minimal or if the seller provides additional financial incentives. Finally, speed is essential because the health of a distressed company’s core business can deteriorate rapidly if customers, employees, and other parties jump ship.

An example involving the acquisition of a distressed company is Volkswagen’s 2021 launch of a takeover offer, in partnership with Pon Holdings and Attestor Limited, for Europcar Mobility Group, a car rental company facing financial challenges. Another case in point is Siemens Gamesa’s purchase of Senvion’s European onshore services business in October 2019, following Senvion’s insolvency filing in April 2019.

Collaborative Ventures. Forming a strategic partnership with one or more other companies or PE firms enables the parties to pool resources and expertise. The resulting collaboration can take the form of a traditional joint venture or an equity alliance. Another option is to co-invest in a target with a financial sponsor.

Collaborative ventures offer several advantages. First, they stretch the corporate buyer’s capital and distribute the deal’s risks, which is especially valuable in the case of larger transactions. Second, the presence of a financial investor, with the additional scrutiny and validation that this implies, can enhance perceptions of the deal among a corporate buyer’s investors. Third, and most importantly, partnering with a financial sponsor can intensify momentum and a focus on performance, boosting value creation beyond what a single buyer might achieve.

Sharing ownership with a financial or strategic investor can be challenging, of course, so it is essential to clearly define governance and decision rights from the outset. In addition, establishing a clear exit path strategy for the partner is crucial to success.

In 2016, Nestlé and R&R created Froneri, an ice cream and frozen food joint venture operating primarily in Europe, the Middle East, Argentina, Australia, Brazil, the Philippines, and South Africa. After the formation of the joint venture, Froneri made acquisitions to expand its business into North America, Israel, and New Zealand.

Another case in point is the 2019 joint acquisition of staffing firm Sound Inpatient Physician Holdings by OptumHealth (part of UnitedHealth Group) and the PE firm Summit Partners from Fresenius Medical Care for $2.2 billion.

Consortium Break-Up Bids. A more aggressive type of collaborative deal entails working with partners that have complementary interests in different parts of a target’s business. The purpose of such a consortium break-up bid is first to acquire the company as a whole and then to carve out relevant assets and divide them among the partners. Such an approach not only helps defray the transaction’s costs and risks, but also ensures a best possible fit with each consortium member’s strategy. Consortium break-up bids are among the most complex deals to orchestrate and execute, as reflected in the small number of examples in recent years.

Indeed, consortium break-up bids are not for the faint of heart. Consider the 2007 acquisition of ABN AMRO by the consortium of Royal Bank of Scotland, Fortis, and Banco Santander. Each partner had a distinct business segment in sight that fit in its profile: investment banking for RBS, Dutch retail banking for Fortis, and operations in Brazil and Italy for Santander. However, RBS and Fortis incurred significant losses stemming from the acquisition, leading to the nationalization of the former and the breakup of the latter. Ultimately, bad timing doomed the deal—the acquisition occurred just before the global financial crisis—but the complexity and inherent risk of the endeavor were already clear to analysts and investors prior to the market downturn.

Amid the cautionary tales are success stories proving that these collaborations can be very rewarding for bold dealmakers that are equipped to navigate them.

Decoding Divestiture Dynamics

Before delving into how experts approach divestitures, it is worth considering the special relevance of asset sales today. Divestitures are an essential tool for companies that want to reallocate scarce and costly capital to better uses, whether the goal is to refocus the portfolio or to offload underperforming business assets. It is no surprise, then, that investors commonly reward divestitures with high announcement returns. Even so, such sales are not always straightforward. Deciding what to sell and when and how to sell it are critical factors. (See Exhibit 3.)