Sometimes, a detailed portfolio analysis results in a strategic decision to sell part or all of a business. Divestitures can free up capital, increase management focus on core parts of the company, strengthen the balance sheet, and lead to growth in the remaining business units. Like an acquisition, a divestiture must be carefully considered and grounded in a clear exit strategy.
M&A and Divestitures
BCG’s Exit Strategy Expert Shares Some of the Secrets to Successful Divestitures
Whether a trade sale, spin-off, or IPO, a successful divestiture starts with a thorough portfolio review. Only an honest assessment of the potential for value creation, the ownership advantage of the corporate parent, and alternative (and perhaps better) ways to deploy capital can determine whether a divestiture makes sense.
Sellers should consider three factors: the parent company’s situation, the attributes and prospects of the asset in question, and the current state of the market. Ignoring or missing any of these factors will make it difficult to create value through divestiture. Here are key questions that must be answered:
In many cases, before a transaction can take place, the parent company must first perform a carve-out to ensure that the business being sold has the legal foundation, administrative infrastructure, and commercial capabilities it needs to stand alone.
Careful carve-out preparation lays the foundation for successful business divestiture. It is especially necessary when all the functions that are required in a stand-alone entity do not yet exist within the asset to be sold. These include organizational infrastructure, financial operations, and sales and marketing functions.
Important questions have to be answered before a new entity can be formed and sold to a new private or public owner. These questions include: