The acquisition and divestiture strategy is one of the most difficult aspects of managing an M&A process. It requires constant evaluation to discern between core and non-core assets. A well-planned and executed plan of divestiture and a well-defined strategy can help to reduce the cost of acquisitions. In the same way, the cost of retaining non-core assets may also be greater than their value. It is essential to ensure that managers invest the money necessary to prepare and structure divestitures.
The first step in a divestiture involves identifying potential buyers for the asset. Financial modeling and discounted cash flows (DCF) analyses are employed to achieve this. Typically, this procedure is carried out by finance experts.
Once the company has identified the buyer, it can begin to negotiate the sale. This is an important step to ensure that the company sells the asset for a fair price. The company will be able to receive a significant amount of cash following the sale. This capital infusion is often used to expand existing business divisions, or pursue new business lines. It could also be used to pay off debt.
A divestiture may be performed to get rid of a business that is not profitable. This type of divestiture usually involves a carve-out, in which the parent company holds an ownership stake or a spin-off, in which the subsidiary is sold to shareholders as a separate entity. In both cases, maximising value is the goal. A successful divestiture requires an effective communication strategy and taking into account the needs of employees following the transition.
