Sometimes, divestments don’t live up to expectations, despite their immense potential to create value. This article outlines how companies can increase their chances of success and shift their portfolios into a higher the gears.
The Right Time
When managers realize that an asset isn’t serving strategic objectives, it’s the best time to think about selling it. The ones who wait in anticipation run the danger of a steady decline in performance and possibly lower prices for purchases.
It is vital to be transparent with employees about the intent and implications of a divestiture. This includes clearly communicating the reasons for the decision and ensuring that employees know that their careers will not be affected. It is also essential to inform the top customers within 48 hours of the announcement and to establish a specific process for managing issues that arise following the closure.
A well-timed divestiture allows companies to reallocate resources and invest in core strategic areas. Neste is a Finnish oil company, changed its name in 2015 to reflect its commitment to renewable energy. It invested the proceeds from the sale of its oil and natural gas businesses. The company was able to double its stock returns in just five years.
The best-in-class divestors screen their companies’ portfolio for candidates on a regular basis and have teams that are dedicated to this task. They typically have experts in areas like the separation of accounting systems as well as the implementation of service-level contracts between the remaining company and the divested webpage business. They also conduct an in-depth review of any links or entanglements that may exist between the business that is being divested and their portfolio.