The acquisition and divestiture strategies is one of the most difficult aspects of an M&A process. It is important to constantly evaluate assets in order to distinguish between noncore and core assets. A well-planned and executed plan of divestiture and a clearly defined strategy can assist in reducing the cost of acquisitions. Additionally, the cost of keeping non-core assets can be more than their value. This is the reason it’s crucial for managers to invest the time and resources needed to prepare and arranging divestitures.
The initial step of a divestiture is to find potential buyers for the asset. This is accomplished through financial modeling and discounted cash flow (DCF) analysis. Typically, this step is carried out by finance experts.
Once the company has identified a buyer, it can proceed to negotiate the sale. This is an essential step to ensure that the company can sell the asset at a fair price. When the sale is completed the company will receive a large cash inflow. This cash flow is often utilized to expand existing business divisions or explore new avenues of business. It could also be used to pay off debt.
A common reason for a divestiture is the need to eliminate a non-profitable business line. This type of divestiture usually involves a carve-out, in which the parent company maintains an ownership share or spin-off, in that the subsidiary is sold to shareholders as a separate entity. In both cases, maximising value is the aim. A successful divestiture requires an effective communication strategy and an understanding of the needs of employees after the transition.
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