Divestiture Planning and Execution
Addition by subtraction
Divestiture is much more than “merger in reverse.” No matter how amicable, it’s more like divorce. The rise of ERP and shared services have created tightly integrated businesses that are hard to carve into standalone units. Parent organizations, spin-offs and buyers all pursue different agendas, but each puts value at risk if the divestiture isn’t handled properly.
With the increase in complex, large-scale divestiture transactions and the emergence of multiple types of buyers and transactional forms (including distressed assets), managing a divestiture today is more critical, and challenging, than ever. We have advised many of the world’s largest companies during large, complex divestitures and have helped them in their efforts to reduce risk, accelerate separation timing, and protect the value of both the divested entity and the parent company. Learn more about the market offering.
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Make a clean break
Today, carving out an independent business unit, or integrating an asset with a buyer’s business, is more complex than ever. It takes constant discipline to make sure back-office processes, sales forces, and shared services are seamlessly transitioned. Costs that logically ought to disappear can, in practice, be “sticky” and hard to contain. Our experienced advisors can help companies mitigate these complexities early in the divestiture process by helping them in their efforts to clearly define end-state blueprints, minimize transition costs, and increase transaction speed.
As with any breakup, divestitures can be disruptive. Internally, employees have to perform their day-to-day jobs along with project-based separation activities, which can stretch resources to the breaking point. Externally, both the parent and the spin-off risk making transitional mistakes that can jeopardize market standing and business continuity. Developing a robust Day One plan for all functions can help mitigate these challenges – and an equally coherent end-state plan can help focus energy on the core business that remains.
How We Can Help
With the increase in complex, large-scale divestiture transactions and the emergence of multiple types of buyers and transactional forms (including distressed assets), managing a divestiture today is more critical, and challenging, than ever. We have advised many of the world’s largest companies during large, complex divestitures and have helped them in their efforts to reduce risk, accelerate separation timing, and protect the value of both the divested entity and the parent company.
Whether they are sellers, buyers, or part of a business unit changing hands, organizations involved in a divestiture can benefit from a comprehensive approach that addresses key areas of strategy including:
- Establishing effective governance and operating models
- Developing divestiture roadmaps and end-state blueprints
- Minimizing the dependency on transition services agreements (TSAs)
- Preparing and pressure testing Day One readiness plans
- Identifying and eliminating stranded costs
Effective planning and execution of divestitures can help organizations in their efforts to achieve:
- Increased shareholder value through a rapid and effective separation with minimal transition service dependency
- Stabilized operations with no negative customer or employee impact on Day One and beyond
- Reduced risk by maintaining business continuity though customer and talent retention
- Improved SG&A cost structure
- Improved visibility with measurable quick wins
Ways to Get More Value Now
Based on our experience helping organizations in their divestiture efforts, we have developed the following lessons learned. Consider these as you begin your divestiture initiative.
- Define the end state and map the way there. Clearly defined carve-out strategies and end-state blueprints are effective in preventing organizational roadblocks. It’s important to define not only how the newly carved-out business will operate at close, but also the divested entity’s future state, including corresponding organizational and financial implications.
- Don’t preserve more ties than necessary. Too often, businesses include TSAs as the default option without questioning whether there are quicker, cheaper options. Because neither the seller nor the buyer is typically in the service-providing business, the result can be expensive, underperforming service for both parties. Organizations should view TSAs as necessary evils with accurate costs, defined service levels and specific exit plans.
- Execute on Day One. Repeat. A robust, pre-tested Day One readiness plan is “earthquake insurance” against disruption and uncertainty at the moment of truth. By prioritizing objectives for each function, organizations are better positioned to maintain business continuity, reduce employee tension, and minimize customer defections. Just as vital is an end-state plan that outlines major activities, responsibilities, and interdependencies as the separate organizations move toward normal, ongoing operations.
As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.