How to Improve Your Acquisition and Divestment Strategy

Despite their potential to create value divestitures often fail to satisfy expectations. This article outlines how companies can increase their odds of success and shift their portfolios into higher gears.

The Right Time

The moment executives recognize that the asset is no longer in line with strategic goals is the perfect time to consider divestiture. The executives who are waiting in anticipation are at risk of a continuous decline in performance and perhaps lower purchase prices.

Transparency is essential when it comes to communicating with employees the intentions and implications of selling. It is essential to inform employees of the rationale behind the decision and make sure that employees are aware that their jobs won’t be affected. It is also important to notify top customers within 48 hours of the announcement and to create a dedicated procedure for handling issues that arise following the closure.

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 a focus on renewable energy following the sale of its gas and oil businesses in 2015 and reinvesting the profits. The company was able to double its stock returns in only five years.

The top divestors review their portfolios of candidates on a regular basis and have teams dedicated to this work. The teams usually comprise members with specialized skills in areas such as the separation of accounting systems and implementing service-level agreements between the other company and the divested business. In addition they conduct an in-depth analysis of the value created by any entanglements between the company being sold and the remaining portfolio.