Despite their huge potential for creating value, divestitures are often not able to achieve the expectations. This article will explain how companies can improve their chances of success and shift their portfolios into higher the gears.
The Right Time
The moment that executives realize that an asset no longer supports strategic goals is the ideal time to consider divestiture. The executives who are waiting in anticipation run the risk of a continuous decline in performance and even lower purchase prices.
Transparency is essential when communicating to employees the reasons and consequences of a sale. It is important to communicate the rationale behind the decision and make sure that employees are aware that their careers won’t be affected. It is also crucial to inform the top customers within 48 hours of the announcement and to establish a specific process for handling any issues that arise post-close.
A well-timed divestiture gives companies the opportunity to repurpose resources and invest in strategic areas. For example, Finnish oil company Neste changed its name to reflect its focus on renewable energy following the sale of its gas and oil businesses in 2015 and investing the profits. This enabled the company to double its stock returns within just five years.
The top divestors in the industry screen their portfolios for potential candidates regularly and have teams dedicated to this work. These teams typically include people with specialization, such as in the separation of accounting systems and the implementation of service-level agreements for the remaining business and divested. They also conduct a rigorous study of any possible links or entanglements between the business that is being divested and the rest of their portfolio.