What makes a divestiture successful? The answer depends on many factors, such as the parent company’s current situation, the state of the market, and industry pressures. But by looking at companies that have experienced good results with their divestitures, it’s easy to spot common strategies that make a real difference in the outcome of the deal.
After the recession, the Merckles, a family of German pharmaceutical entrepreneurs, wanted to reorganize their corporate portfolio. They decided to sell Ratiopharm, the group’s generic drug business. Divesting wasn’t going to be easy—German health care insurers were putting pressure on industry margins—but in the end, the carve-out was a big success. Here are some key lessons to be learned from this example.
Divesting a business can make emotions run high, but feelings have no place in the divestiture process. Ratiopharm’s shareholders and management viewed the sale as a strategic tool to free up cash and optimize the value of the overall corporation.
The Merckle Group knew full well what Ratiopharm was worth—and they marketed it accordingly. The information memorandum and management presentation included a detailed business plan that was aligned with the market and outlined clear, operational improvement measures.
Every action was made with an eye on long-term strategy. This allowed shareholders and management to communicate Ratiopharm’s long-term growth story and describe corporate capabilities and potential synergies to investors.
The sell-side team included several executive levels and all functional departments, which enabled everyone to participate actively in the process. This boosted commitment and employee morale.
External M&A experts provided process security and freed up capacity for day-to-day business and operational improvements.