20 May

How to Improve Your Acquisition and Divestment Strategy

Despite their potential to generate value, divestitures rarely achieve the expectations. This article will explain how companies can improve their odds of success and shift their portfolios into a higher gears.

The Right Time

When executives realize that an asset is no longer assisting the company’s strategic goals, it’s the appropriate time to sell it. Leaders who wait expectantly are at possibility of a continuing decline in performance and possibly lower purchase prices.

Transparency is vital when it comes to revealing to employees the intentions and implications of the sale. It is crucial to explain the reasoning behind the decision, and ensure that employees are aware their careers won’t be affected. It is also essential to notify top customers within 48 hours of the announcement and to set up a dedicated procedure for dealing with problems that arise post-close.

A well-timed sale can allow companies to repurpose their resources and invest in core areas of strategic importance. Neste, one of the Finnish oil company, changed its name in 2015 to reflect its commitment to renewable energy. It invested the proceeds from selling its natural gas and oil businesses. The company was able to double its stock returns in just five years.

The best-in class divestors regularly check their portfolio for candidates and have teams dedicated to this task. These teams typically comprise people with specialization in areas such as the separation of accounting systems and the implementation of service-level contracts between the remaining company and the divested business. In addition, they conduct rigorous analysis of the value that is created by any links or entanglements between the business that is being sold and the remaining portfolio.

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