Global corporate divestment study
Five leading practices to maximize divestment success
We are not in a traditional cyclical downturn. In developed markets, growth is unlikely to bounce back to pre-crisis levels for some years to come.
"Sellers should speak to a targeted range of potential buyers. This doesn't mean that they need to speak to more buyers, but rather the right buyers, early in the process."- Stephen Lomas, Asia Pacific, Ernst & Young
1. Conduct structured and regular portfolio management
Many companies are operating in a low-growth economy and they are under pressure from shareholders to sharpen their focus.
This feedback is encouraging them to reassess their portfolios and determine the performance and positioning of assets, as well as their contribution to broader strategic goals. By regularly reviewing their portfolio, companies can use divestments as a strategic tool, rather than considering them as a reactive move to free up cash or pay down debt.
2. Consider the full range of potential buyers
An important aspect of thinking strategically about divestments is to set clear goals for any sale at the outset. Companies must have a view of the value they expect to achieve and the speed with which they would like to complete the transaction.
They must also understand where interest in the asset is likely to be, and take a broad view of potential acquirers they want to attract to reach those objectives.
3. Articulate a compelling value and growth story for each buyer
Sellers do not always clearly articulate to potential buyers the rationale for selling an asset. They need to communicate the growth story of an asset, and provide tailored information about how it could fit with the buyer's business and help them achieve their strategic objectives.
The greater the clarity sellers are able to provide, the greater the likelihood that they will extract more value from the sale.
4. Prepare rigorously for the divestment process
An uncertain economic environment increases the risk that a transaction will not be completed. By preparing effectively, companies can instill greater buyer confidence, gain control over the process, and realize greater speed and value.
Many companies admit that there is room for improvement in this area. When respondents were asked how they would rate their preparation effectiveness for their most recent divestment, only 54% said they performed well in any one aspect of the process.
5. Understand the importance of separation planning
The sale is not the end of the divestment process. Companies need to carefully consider the impact of separating the asset on the remaining organization and make appropriate preparations. This should include thoroughly assessing stranded costs, understanding the one-time costs of separation, business continuity, unwinding tax structures and transaction closing mechanisms.