Despite their potential to create value divestitures often fail to be as successful as expected. This article outlines ways that businesses can improve their chances of success and get their portfolios in high gear.
The Right Time
The moment that executives realize that an asset no longer supports the strategic goals of the company is the best moment to think about divesting. The executives who are waiting in anticipation are at risk of a continual decline in performance and perhaps lower purchase prices.
Transparency is crucial when it comes to revealing to employees about the intention and the implications of the sale. It is crucial to explain the rationale behind the decision, and ensure that employees know that their careers won’t be affected. It is crucial to share the news with the top customers within 48-hours of the announcement, and to develop a process that is specifically designed to deal with any issues that may arise after closing.
A well-timed sale allows companies to shift their resources and invest in core areas of strategic importance. For example, Finnish oil company Neste changed its name to reflect its focus on renewable energy after selling its oil and gas operations in 2015 and investing the proceeds. The company was capable of doubling its stock returns in only five years.
The best-in class divestors regularly screen their portfolio for candidates and have teams that are committed to this job. The teams typically comprise members with specific expertise such as the separation of accounting system and the implementation of service-level agreements between the remaining business and divested. They also conduct an in-depth analysis of any links or entanglements which exist between the divested business and the rest of their portfolio.
