The modern supply chain, with its interdependent components and processes, is inherently sensitive to change. Planning for these interdependencies is essential when an organization undergoes a divestment, as 84% of companies plan to do in the next two years, according to the EY Global Corporate Divestment Study. Failing to address this complex entanglement can lead to unexpected costs for both the seller and the buyer. It can also delay completing the divestment.
It is essential for CFOs, corporate development officers and supply chain executives to manage and prioritize key separation challenges early in the process to enable speed to close.
Our experience in helping to facilitate hundreds of divestitures has revealed several leading practices across the deal life cycle that companies can adopt to drive value for both RemainCo and DivestCo and to ease separation while ensuring business continuity on day one.
1. Prepare ahead of time
Assessing the level of entanglement across the supply chain in advance not only helps prevent business disruption on day one but also significantly enhances the level of preparedness for buyer discussions. This can boost both buyer confidence and valuation. Our experience shows that identifying the critical entanglements and stakeholders early — including suppliers, employees and customers — ensures adequate time to plan accordingly, obtain the necessary buy-in and preempt risks.
2. Collaborate early to develop a day one operating model and governance structure
Developing an early plan for the day one supply chain operating model enables leadership to understand the capabilities that need to be stood up, supported through transition services agreements (TSAs) or replaced for DivestCo and RemainCo. This can help mitigate any potential business interruption on day one. Focus areas include people, processes, technology, contracts, assets and the geographic distribution of these components.
Additionally, defining a robust governance structure at an early stage allows organizations to dedicate the right leaders and resources and empowers decision-making within the team, which helps accelerate the overall deal timeline. As part of this planning, management must establish both the day one (interim) and the future state operating models. This includes executing supplier, manufacturing and commercial agreements between RemainCo and DivestCo to ensure business continuity.