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Divesting for value: Effective divestiture management - EY - Global

Divesting for value

Effective divestiture management

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Successful divestitures depend on strong leadership and effective cross-functional teams

Cleanly divesting a business that can preserve its value and perform on its own from Day 1 requires strong executive leadership with a history of successfully managing complex enterprise-wide projects.

Key points:

  • Choose an influential senior executive with an in-depth knowledge of the business being divested as divestiture leader
  • Create, staff, empower and provide adequate resources to the sell-side project management office (PMO)
  • Consider and address HR issues early
  • Communicate the value proposition of the deal and its timeline to build employee support and promote stability

Successful divestitures depend on strong leadership and effective cross-functional teams. No company can afford less than senior-level management to lead its sell-side efforts.

Further, the imperatives of coordination and communication call for a dedicated, influential, experienced executive who can lead teams and command attention. The involvement of senior management also clearly conveys the message that divestitures are a strategic priority.

Early collaboration across teams that have been “cleared” into the transaction is also critical for functional alignment of strategic objectives as well as timelines. HR, finance, IT, tax and other business functions should be involved in preparing carve-out financial statements, sell-side due diligence and a stand-alone business model and transition planning.

The divestiture PMO

Creating a TMO helps sellers manage divestment processes effectively. As early as possible, sellers should designate key team members and establish lines of reporting.

Transaction leaders should establish a charter for the sell-side team and institute rigorous project management to oversee the many tasks and details, including preparation of carve-out financial statements (audited, deal-basis or both), assembling and maintaining the data room, creating management presentations, completing registrations for the new business entity and so on. Project governance such as timelines, communication protocols and record- keeping tools are also necessary.

HR and communications

The human factor plays a big role in whether a sale is successful or not. The decision to divest is often difficult to communicate to employees. But, it is critical to sell employees on the value of the deal.

Timing the announcement, creating a network of influencers and clearly defining strategic and targeted messages are necessary components that are too often overlooked when managing a sale.

With poor handling of the human side, talent poaching can become a problem and impact value in a material way. Employees may flee, fearing upheaval and change. Effective communication can convey to employees the career benefits of working for a new owner who will place greater value on the business.

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