Driving Value Through Separations and Divestitures
Corporate Development 2012 – Leveraging the power of relationships in M&A
Carve-outs and divestitures have become an area of increasing focus for organizations, likely a result of external and internal pressures on executives to ensure that their portfolios are making good use of capital. However, many companies fail to get what they are looking for in these transactions, and find that costs can overwhelm benefits. How can corporate development teams help their companies avoid pitfalls and maximize value? Whether the transaction is intended to shed non-core assets, allay regulatory concerns, or respond to other drivers, a key to success for divestitures almost always comes back to one word: preparation.
What do companies want out of a divestiture? Getting value for their assets is the top goal, cited by the largest group of survey respondents in our Corporate Development 2012 survey (see figure). Clearly, negotiating a good price matters. The level of chaos such transactions may create in the existing business is also, apparently, a big concern, with the goal of minimizing disruption to the business the second most common answer cited by survey respondents. Closing the deal quickly and using management’s time efficiently are also important but rank much lower on the list of priorities.
Importance of outcomes that characterize a successful divestiture
Based on our experience, here are some of the most important steps in preparing to separate out part of the business:
- Make sure that all the stakeholders are aligned
- Create a plan for how the divestiture will happen, function by function
- Do due diligence on yourself
The key takeaway here: being prepared applies to divestitures as much as any other type of transaction. Don’t let the details slip through the cracks. A detailed disentanglement plan, a sense of the buyer’s strategy, and supportable information to help underpin key investment considerations and potentially assuage buyer concerns can save both time and money, and increase the probability of success.
For further insights on what Corporate Development executives are thinking related to divestitures, read Corporate Development 2012 – Leveraging the power of relationships in M&A.
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