Three key factors for a successful divestiture process

Planning

Having a dedicated team and a structured portfolio review process in place are key to early identification of potential divestiture candidates. This provides a better opportunity to position the business for sale and, therefore, extract higher value in the market. When it comes to planning and preparing for a divestiture, the below outlined steps are not only critical but also attuned to one another to enable a smooth divestiture process:

• Define the transaction perimeter early in the process.
• Develop separation guiding principles covering five general areas:
  • Legal structure & financials
  • Carve-out governance
  • Standalone business model
  • TSAs
  • Day 1 readiness
• Perform a robust exit readiness assessment to identify key issues early on, and set out a clear plan to remediate those issues.
• Designate transition leadership at all levels and establish a carve-out management office to mobilise the organisation and define the divestiture roadmap covering legal, tax, and key functions.
• Set up governance and document assumptions such as roles and responsibilities, mandates, timelines and key milestones.
• Evaluate the as-is operating model across five dimensions (people, processes, contracts, assets and technology). This is required to gain a comprehensive understanding of its operational dynamics, entanglements, and stranded costs potential, which plays a major role in driving decision-making in the divestment process.
• Assemble a cross-functional team to address the transformational nature of a divestiture by aligning primary and support functions to make sure interdependencies are understood.
• Prepare (pro forma) historical carve-out financials to have a comprehensive view on the financial position and performance of the divested business to enable informed decision-making and insights into its financial standing.
• Prepare for both strategic and financial buyer scenarios, so that you can be in the best position at the negotiating table and can react to unforeseen opportunities and challenges.

Execution

The carve-out execution phase – from ‘design to standalone’ usually consists of three sub-phases, synced to the deal process:

Staff

Above all, it is important to recognise the human aspect of divestments, represented by the ‘staff’ element in the framework. Divestiture processes bring uncertainty, emotions, and additional workload. In a corporate environment this can be an important source of inertia leading to indecisiveness and procrastination of important strategic choices. Therefore, it is key to maintain engagement and motivation among your employees:

• Define employees required to be ‘in the know’; the initial divestiture planning can often be performed with a few key employees with deep knowledge of the business. As the deal process kicks in, they can help to meet information requirements of potential buyers and prepare the business for sale.
• Manage the divestiture as a business process and focus employees and capital on the right activities at the right times. Divestitures rarely fail due to a flawed strategy. Rather, failure is often a result of not executing the strategy in a timely and coordinated manner.
• Develop a communication plan and start executing on communications early on. Open and transparent communication keeps employees engaged and motivated, which is vital for a smooth transition and minimizing disruptions.
• Identify key talent and develop a retention plan early in the process to keep critical knowledge and expertise within the organisation to ensure business continuity. Retention can be established by defined a clear career path, having open conversations, installing proper change management and pay-out of bonuses.