What are Divestitures & How to Create a Successful Strategy for It?

While divestitures have long been part of the M&A landscape, they seldom receive the attention they deserve. Read this post to learn what it is and how to make a successful divestment strategy.

With the world turning into a global village, M&As have become increasingly common among organizations wanting to capitalize on overseas business opportunities. But there’s a lot more to the M&A landscape than the conventional mergers and acquisitions.

For instance, divestment or divestiture can yield robust results if backed by a well-thought strategy. But what are divestitures? How to create a successful divestment strategy? Let’s take a look-

What are Divestitures?

When companies expand, they often struggle to manage all the business arms efficiently. Divestment or divestiture lets them focus entirely on critical business operations and drive more revenue. It is a type of retrenchment strategy used by firms for scaling down their business activities.

With divestment, an entity sells business divisions, subsidiaries, or assets with the goal of enhancing financial health and streamlining operations. Moreover, divestitures offer various transaction options, including carve-outs, spin-offs, split-offs, trade sales, and asset liquidation.

What are Common Reasons to Consider Divestiture?

Some of the most common reasons are-

Generating additional funds

Better focus on the core business operations

Insufficient internal talent

Reallocate funds

Tax structure or regulatory environment

Attractive offer from a 3^rd party

Reduce debt

Increase transparency

Attract investors

How to Create a Successful Divestiture Strategy?

Proactive preparations are essential to ensure divestitures deliver the expected results. Here are some components of an efficient divestiture strategy-

Start with a Clear Goal- Before working on the divestment strategy, ensure you are fully aware of what you’re trying to achieve with the deal.

Finalize the Right Divestment Type- There are significant differences between spin-offs, carve-outs, split-offs, trade sales, and asset liquidation. Select the right strategy based on your objectives.

Involve HR- The success and value of any business asset depend on the people related to the deal. Thus, the HR team plays a vital role in carve-outs and divestments. It’d be wise to involve them early in the deal.

Create LOA and PA- Once the buyer is finalized, a Letter of Intent or LOA is produced to initiate the divestment. It is followed by due diligence and the creation of a Purchase Agreement (PA), which includes detailed information about the transaction.

Deal Closure- The deal is considered closed once the involved parties sign the PA.

Contract Professionals for Successful Divestitures

While divestitures can help a business in various ways, the deal’s success abundantly relies on the strategy and the people involved in the transaction. Thus, most companies rely on divestiture and carve-out professionals for the best results.

If you’re thinking about divestment, consult a reputed business advisory firm to learn more about the options and get all the expert assistance you need to succeed with your divestiture plan.