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Top 5 Things to Consider When Undergoing a Divestiture

In the basic sense, a divestiture is the opposite of an investment. It is a form of internal financing that enables companies to convert capital tied up in assets into cash. In order for a disinvestment to take place, capital must first have been invested in assets. This can be in the form of tangible assets such as real estate, company segments, machines, materials, or production plants. Intangible assets like patents and licenses can also be divested. If this does not exist, the alternative is capitalization through the sale of shares or bonds, and financing through loans. Divestiture is particularly important for companies because it provides liquid funds that can be used to maintain or advance the company.[1]

For a long time, mergers and acquisitions were the focus when it came to value-creating strategies. Divestitures, on the other hand, were hardly given any attention and were rather interpreted as admissions of wrong decisions or as a measure to remedy a crisis situation. Today, however, corporations operate in an environment that is characterized by continuous change and demand for flexibility. Therefore, divestitures have become more strategically attractive. [2]

Here are 5 things to consider when undergoing a divestiture and how to deliver maximum value from this strategy.

  1. Coherent And Clear Strategy:

One of the most essential prerequisites necessary for the success of a disinvestment project is a good strategy. It has to be clearly defined and formulated in which framework the divestment will be carried out.[3] Are buyers interested in the asset or the capabilities being divested? What would make a buyer potentially interested in this business? It is important to have a clear picture of the strategic relevance of the divestiture for the business and its future competitiveness.

  1. Efficient and Effective Process:

In addition to defining clear objectives, it is also essential to install efficient process management. A structured implementation of divestment projects begins with the assessment of the strategic value contribution of the company unit under consideration and the identification of a buyer. Appropriate processes must be installed in the company to be able to carry out such projects efficiently and effectively.

  1. Input from Specialists

In managing the divestment, it is essential that further specialists are involved in the sales process. One should think in particular of employees who have already been involved in such projects. Employees in a responsible position who have divestment-relevant experience might have valuable input when it comes to a smooth transition in the divestiture process.[4]

  1. Transparency

Company leaders need to clearly communicate their intentions with each other, as well as with Human Resources.[5] Coordinated communication between management and the employees ensures that there is sufficient information about the project within the company. This will make that trust in the leadership both among the employees of the areas to be sold, as well as those that remain in the company, while avoiding or limiting the occurrence of unnecessary fears. In this way, the loyalty of the workforce can be preserved and it can be prevented that there is a paralysis of the organization.[6]

  1. Timetable

The sales process should be completed as quickly as possible. Timing is a key factor in many ways. When companies keep assets that no longer serve them, the assets tend to lose value. It is important to develop an individual timetable, which describes how and in what time frame communication, addressing interested parties, or organizational preparation takes place.

Formulating clear objectives and following a systematic approach to implementation is what proactive divestiture is about. A divestiture strategy, if executed sensibly, can be a valuable instrument for optimizing the business portfolio and an essential contribution to increasing company value.

FabExchange works with clients that benefit from our unique combination of industrial and consulting experience as well as a passion for the transformation and strategic realignment of companies. We not only develop concepts for you, but also accompany you and your company until the defined objective is achieved. We provide valuation-, disposition-, as well as divestment support. Contact us and allow us to assist you with creating long-term strategies that will ensure your success in the future.


[1] Ganti, Akhlesh (2020 November 2) Divestment.
Retrieved from: https://www.investopedia.com/terms/d/divestment.asp
[2] Gaughan, Patrick A. (2012 January 2) Maximizing Corporate Value through Mergers and Acquisitions. A Strategic Growth Guide. Retrieved from: https://onlinelibrary.wiley.com/doi/book/10.1002/9781119204374
[3] Finck, Gerd & Koenig, Jamie & Krause, Jan & Silberstein, Marc (2020 September 20) What’s keeping you from divesting? Retrieved from: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/whats-keeping-you-from-divesting
[4] Patel, Kison (2020 December 9-10) What Is a Business Divestiture and How Does It Work. Retrieved from: https://dealroom.net/faq/divestiture-guide
[5] Patel, Kison (2020 December 9-10) What Is a Business Divestiture and How Does It Work. Retrieved from: https://dealroom.net/faq/divestiture-guide
[6] Warren, Lori & Russ (2015) What to Do When Less is More: Planning and Managing a Corporate Divestiture. Retrieved from: https://www.edgepoint.com/article/WHAT-TO-DO-WHEN-LESS-IS-MORE-Planning-and-Managing-a-Corporate-Divestiture

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