The results of divestments are often not up to expectations, despite their huge potential to create value. This article will explain how companies can improve their odds of success and shift their portfolios into higher gear.
The Right Time
When executives realize that the asset is no longer serving strategic goals is the ideal moment to think about divesting. The ones who wait in anticipation are at risk of a continued decline in performance and potentially lower prices for purchases.
Transparency is key when it comes to revealing to employees the reasons and consequences of a sale. This includes clearly stating the reasons for the decision and making sure that employees are aware that their careers will not be affected. It is also essential to inform top customers within 48 hours of the announcement, and to set up a dedicated process for managing problems that arise post-close.
A well-timed sale can allow companies to redistribute their resources and invest in core areas of strategic importance. For instance, Finnish oil company Neste changed its name to reflect its focus on renewable energy after it sold its oil and gas businesses in 2015 and reinvesting the proceeds. The company was capable of doubling its share returns in just five years.
The top divestors are those who review their portfolios of candidates on a regular basis and have teams dedicated to this work. The teams typically comprise individuals with specialized expertise such as the separation of accounting system and the implementation of service-level agreements between the remaining business and the divested one. Additionally, they conduct rigorous analysis of the value that is created by any entanglements between the business being sold and the remaining portfolio.