The acquisition and divestiture strategy is among the most difficult aspects of an M&A process. It requires constant evaluation to differentiate between core assets and non-core. A well-planned and executed plan of divestiture and a well-defined strategy can help to reduce the cost of acquisitions. The cost of keeping non-core assets may also be greater than their value. This is why it’s vital for managers to put the required resources in preparing and arranging divestitures.
The initial step in a divestiture is to find potential buyers for the asset. Financial modeling and discounted cash flows (DCF) analyses are used to achieve this. Finance professionals are typically involved in this stage.
After the company has found an appropriate buyer, it may proceed to negotiate the sale. This is an essential step in ensuring the company is able to sell the asset at a fair cost. The company will receive a large amount of cash following the sale. This capital infusion is usually used to increase the size of existing divisions or to pursue new business lines. It could also be used to pay off debt.
A divestiture may be performed to take down a non-profitable business. This kind of divestiture typically involves a carve-out, in which the parent company maintains an ownership share or spin-off, where the subsidiary is sold to shareholders as a separate entity. In both instances, the goal is to maximize the value. A successful divestiture requires an effective communication strategy and taking into account the needs of employees following the transition.
