The acquisition and divestiture strategy is among the most complex aspects of managing an M&A process. It is vital to constantly review assets in order to differentiate between core and noncore assets. Without a well-thought-out strategy and divestiture plan, costs of an acquisition can exceed its value by a significant margin. The cost of maintaining non-core assets may also outweigh the value. It is important that managers invest the resources needed to plan and structure divestitures.
The initial step of an asset sale is to identify potential buyers for the asset. Financial modeling and discounted cash flow (DCF) analyses are used to achieve this. Finance professionals are typically involved in this process.
Once the company has identified an appropriate buyer, it may begin negotiations for an offer. This is an important step to ensure that the company is able to sell the asset at a reasonable price. When the sale is completed the business will receive an impressive cash flow. This capital influx is often used to expand existing business divisions, or to pursue new my sources avenues of business. It is also used to pay down the balance of debt.
A divestiture can be done to eliminate a non-profitable business. This type of divestiture typically involves a carve-out, which the parent company retains an ownership stake or spin-off, in that the subsidiary is sold to shareholders as a separate entity. In both cases, the objective is to maximize the value. A successful divestiture requires an effective communication plan and a taking into account the needs of employees following the transition.