How to Improve Your Acquisition and Divestment Strategy

Despite their potential to create value divestitures usually don’t satisfy expectations. This article outlines ways that companies can increase their chances of success and get their portfolios on the right track.

The Right Time

The moment that executives realize the asset is no longer serving strategic goals is the ideal time to think about selling it. Managers who hold off are at risk of continuous decline in performance and even lower purchase prices.

It is crucial to inform employees regarding the motives and consequences of an acquisition. It is essential to inform employees of the rationale behind the decision, and ensure that employees are aware their careers will not be affected. It is important to communicate with the top customers within 48-hours of the announcement, and to create a dedicated process to deal with any issues that may arise after the closure.

A well-timed sales allows companies to redistribute their resources and invest in core areas of strategic importance. For instance, Finnish oil company Neste changed its name to reflect a focus on renewable energy after selling its oil and gas operations in 2015 and reinvesting the proceeds. The company was capable of doubling its stock returns in just five years.

The best-in-class divestors screen their portfolios for candidates on a regular basis and have teams dedicated to this work. These teams usually include members who have specialized skills in areas 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 examination of the value created by any entanglements or links between the business being sold and the remainder of the portfolio.