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Despite their huge potential to generate value, divestitures are often not able to be as successful as expected. This article describes ways businesses can boost their chances of success and get their portfolios in high gear.
The Right Time
If executives discover that an asset is no longer supporting the company’s strategic goals, it’s the ideal time to consider selling the asset. People who wait in awe are at risk of slowing down of performance and perhaps lower purchase prices.
It is essential to inform employees on the intentions and implications of an acquisition. This means clearly stating why the decision was made and ensuring that employees know that their careers will not be affected. It is crucial to communicate with the top customers within 48-hours of the announcement, and also to create a dedicated process to manage issues that arise after the closure.
A well-timed sale enables companies to reallocate their resources and invest in core areas of strategic importance. For instance, Finnish oil company Neste changed its name to reflect its focus on renewable energy after selling its oil and gas business in 2015 and reinvesting the proceeds. This enabled the company to double stock returns in just five years.
The best-in class divestors regularly screen their portfolio for candidates and have teams that are committed to this job. These teams typically comprise members with specialized skills in areas such as the separation of accounting systems and the implementation of service-level agreements between the remaining company and the divested business. Additionally they conduct a thorough analysis of the value that is created by any entanglements or links between the company being sold and the remainder of the portfolio.