How to Improve Your Acquisition and Divestment Strategy
Sometimes, divestments don’t live up to expectations, despite their tremendous potential to generate value. This article describes ways companies can increase their chances of success and get their portfolios in top gear.
The Right Time
If executives discover that an asset isn’t serving strategic objectives, it’s the best time to think about selling it. Leaders who wait in anticipation are at risk of continuing decline in performance, and even lower purchase prices.
Transparency is essential when communicating with employees about the motives and implications acquisition and divestiture strategy of selling. It is important to communicate the reasoning behind the decision, and ensure that employees are aware their jobs won’t be affected. It is also essential to inform top customers within 48 hours of the announcement, and to create a dedicated procedure for handling issues that arise post-close.
A well-timed divestiture gives companies the opportunity to reallocate resources and invest in strategic areas. Neste is an Finnish oil company changed its name in 2015 to reflect its commitment to renewable energy. It invested the money from the sale of its oil and natural gas businesses. The company was successful in doubling its stock returns in only five years.
The top divestors in the industry screen their companies’ portfolio for potential candidates regularly and have teams that are dedicated to this task. These teams usually comprise people with specialization in areas such as the separation of accounting systems and the implementation of service-level agreements for the remaining business and the divested one. They also conduct an in-depth analysis of any links or entanglements between the divested business and their portfolio.