A large divestiture is one of the most complex actions that a
company can take.
We often compare it to a decathlon.
Numerous work streams have to be coordinated and come together in
a very short period of time.
Making a successful deal in such a high pressure situation
requires careful planning.
And this planning starts by making sure that both the seller
and the asset to be sold are ready to go through the
divestiture process.
There are 4 main elements to assessing divestiture readiness.
First, you need to clarify on the divestiture process itself.
Is it the right time to divest the asset?
What's the right approach?
For instance, do you want to go for an IPO or do a trade sale
and who are the potential buyers and what are their expectations
and of course what is the valuation?
I can expect the answers to these questions can evolve as a
divestiture progresses, but it's essential to have a clear
initial view before launching the process.
Second, since most divestitures require separation of the asset
being sold, sellers need to understand the complexity of the
so-called carve out.
For example, what are the main entanglements between the parent
company and the asset today, and what needs to happen, and what
are the potential roadblocks for getting the asset into a viable
standalone state.
The complexity of a car vault may influence the timing of the
process and it can even postpone its launch.
Third, the business plan needs to have enough detail and
substance to support assumptions and withstand due diligence.
Also, consider whether the business plan is ambitious
enough in terms of value creation.
And remember, a high quality business plan not only supports
an attractive valuation, it also serves as a single source of
truth throughout the divestiture.
And finally, sellers have to define the equity story.
Investors want to know why they should buy the asset in the 1st
place.
A compelling story provides a purchase rationale by
highlighting where the asset stands today and how it can
create value for the buyers in the future.
The story can be aspirational, but sellers should also make
sure that it's realistic and believable.
And with such careful assessment, sellers can make
sure they are truly ready for a divestiture.
And if the assessment does reveal readiness gaps, the
parent company should consider investing in improvements prior
to the start of the sales process.
From our experience, making such investments can yield rewards
including stronger deal security and higher valuations.