The divestiture itself will include various aspects of the business, such as legal ownership, valuation and change of management, as well as employee retention and compensation. A recent survey of 128 executives helped us identify the most common barriers to divestment. Management stated that one or more of the following six concerns have prevented them from divesting over the past decade: errors in asset judgment, underestimation of buyer interest, concerns about harm to the rest of the business, concerns about timing, fear of sunk costs, and emotional attachment to the asset (Figure 1). With 52% of respondents also saying they expect divestments in the next 18 months (Figure 2), now is the time to address these challenges. In this article, we`ll take a close look at each obstacle and suggest possible steps leaders can take to overcome them. Companies often divest themselves of parts of their business that do not meet their expectations. Such divestitures may include the elimination of underperforming subsidiaries or activities. It may have made a lot of sense to buy these jeans back then, but it`s been five years and you`ve only worn them a handful of times in the last year. They just take up space in your closet and aren`t busy, so it makes sense to sell them to someone else. That way, jeans are finally worn the way they should be – and you`ll have money in your pocket and space in your closet for something that better fits your current style. Like an acquisition, any divestment should be a well-thought-out and value-added transaction for your business. Who pays the highest price? Typically, the company that makes the best offer is the one that considers the property to be the most strategic.

However, sellers can`t expect buyers to intuitively understand their own strategic advantages, nor can sellers rely on investment banks to effectively tout the potential of the deal. The key to maximizing the sale price is to see the business sold through the eyes of the buyer and adjust the sales pitch accordingly. This reverse due diligence extends to identifying and quantifying potential cost and revenue synergies for potential buyers. Just like other industry factors (see below), asset owners become aware when certain assets are overvalued due to market scarcity or current fashion among investors. However, a recent survey of executives confirms that this process is mostly abandoned for a variety of reasons, including management`s perception that asset unbundling will be too complicated or that there will be few interested buyers. Executives and boards of directors often worry that divestments will reduce the size of a company in a way that makes it difficult to replace profits. When planning a divestment, it is worth timing the transaction to match the use of the proceeds, ideally in areas such as debt restructuring, share buybacks, or acquiring a new business alongside the company`s core business. The Danone Group, for example, announced in July 2007 that it was in talks to sell its biscuits business to Kraft Foods for more than $7 billion. Less than two weeks later, the company announced it would buy Royal Numico, the Dutch maker of baby food and nutrition bars, for $16.8 billion. This almost simultaneous sale and purchase allowed Danone to kill two birds with one stone: it used almost the entire cash balance of the company, thus reducing its attractiveness as a takeover target after the sale of its biscuit business. It has also achieved a leading position in the global baby food and clinical nutrition markets.

“Numico has all the characteristics we love,” said Antoine Giscard d`Estaing, then Danone`s CFO, on the day of the announcement, “with a focus on health, extremely good research and development, market leadership and commitment to high-growth markets. Investors also viewed the deal positively and quickly increased the value of Danone shares. Textron`s divestiture team maintains a database of potential buyers in Textron`s markets. Result? Leaders can act decisively when sales opportunities arise. Since 2001, Textron has generated average shareholder returns that are more than 6% higher than those of its peers. A company`s management can then identify an underperforming asset that is not critical to the success of their business. If the company decides to sell the asset, it must identify a buyer. Textron has embraced this discipline. Ted Français, Chief Financial Officer of Textron, has assembled a team with strong deal execution skills.

Team members maintain a detailed database of potential buyers for the firm`s companies – both other companies (often referred to as “strategic buyers”) and private equity and other financial firms. They also store data on virtually all transactions completed or contemplated in the markets in which Textron competes. As a result, management has an excellent understanding of the needs of potential buyers and therefore the transactions that can be completed if Textron wants to put a business up for sale. When an opportunity arises, Textron can act quickly and decisively, minimizing disruption to its other areas of business and allowing target business leaders to focus on valuing as much as possible for potential buyers. First, just as they have acquisition teams, smart divestment firms have full-time divestment groups that continually review their companies` portfolios for likely sales and think about the time and implementation steps needed to maximize value in each individual case. Bell Canada has divested itself of its small regional businesses and the rural portions of its wireline retail operations. Some services (such as call centers and network functions) were made available to the new Aliant company on a permanent basis and others only during the transition. Aliant`s shares outperformed other Canadian regional airlines. And Bell Canada has grown as a regionally focused airline. A divestment is management`s decision to sell one of the company`s assets, whether it is a subsidiary, a factory or, as is increasingly common today, the sale of intellectual property.

For example, photography firm Eastman Kodak announced in 2013 that it would sell some of its custom image processing and document imaging businesses after filing for bankruptcy the previous year. These assets are now part of the separate company Kodak Alaris. Selling an existing business or asset class that does not meet the expectations of the business or a country For example, upcoming regulatory changes or the removal of trade barriers can convince a business owner that they cannot remain competitive in a particular segment in the long term, making it easier to decide to divest an asset. Depending on the nature of the sale, talent can be a relatively minor issue or a more complex concern. In the event of a sale, employees and managers in the business unit often remain in their current roles when the company moves to a new owner. But the selling company may want to retain certain talent, such as executives with leadership potential.