For many companies, the process of acquisitions is familiar territory. When it comes to divestments, however, it often remains unexplored. The complexity of divesting a business unit often typically outweighs that of acquiring. Executing a successful divestment, akin to an acquisition, demands a specific set of skills and comprehensive preparation. Being a well-prepared seller implies the ability to foresee potential issues and act pre-emptively to minimise disruption and safeguard stakeholders' interests.
The journey to being divestment-ready goes beyond simply identifying prospective buyers. It encompasses several crucial steps:
Moreover, it's essential to understand that becoming divestment-ready is not an overnight process. Ideally, preparation for a successful divestment should commence 12-18 months before initiating the divestment sales cycle. This enables the divestment team to control the pace and direction of the process. Conversely, a reactive approach to an unsolicited offer from a potential buyer may jeopardise the process.
In essence, divestment planning involves reviewing, analysing, decision-making and executing actions necessary for successful divestment. It should align with long-term corporate objectives and carry strategic intent. To establish priorities at the early stage of divestment, consider these fundamental questions:
Bain & Company found that 53% of senior executives report a clear strategic rationale as the primary driver behind successful divestments.
The rationale for divestment is a crucial consideration. It helps shape the narrative presented to shareholders, employees, other stakeholders, and most importantly, potential buyers.
Some common drivers of divestment include:
Maintaining a regular cadence of smaller divestments is usually less disruptive than a one-off, large-scale “mega” divestment. Prioritising core business units helps communicate a clear and compelling growth narrative. Forced divestments, on the other hand, may be perceived as a sign of distress. Adopting a portfolio management-led approach to evaluating potential divestment candidates can be facilitated by a dedicated sell-side team.
When evaluating potential divestment candidates, consider the following:
A divestment readiness assessment, whether performed internally or by external experts, can provide valuable insights to shape the divestment strategy. The collected information can inform the best governance structure, identify potential value-creation opportunities, determine the ideal timing for the divestment, and anticipate challenges that may arise during the process.
This assessment typically covers the following areas:
Clear and consistent communication with all stakeholders is paramount throughout the divestment process. This includes internal stakeholders (employees, board of directors) and external stakeholders (investors, regulators, customers, suppliers, etc.). Failure to properly manage stakeholder expectations can lead to unnecessary complications and may negatively impact the divestment's perceived value.
Once you've prepared thoroughly, you can proceed to execute the divestment. This includes setting up a data room, preparing marketing materials, initiating buyer discussions, negotiating deal terms, managing due diligence requests and navigating legal and regulatory hurdles. To keep the process on track and ensure a smooth execution, it's essential to maintain momentum, proactively manage potential issues and communicate transparently with all parties involved.
Mastering a divestment strategy is a nuanced and complex undertaking, but it's an essential capability for businesses aiming to maintain a streamlined and high-performing portfolio. From conducting strategic assessments to managing stakeholders and executing the divestment, each step requires careful planning, insight, and strategic decision-making.