Divestiture X's and O's: A Playbook | FTI Consulting

Divestiture X’s and O’s

Why a Playbook for Divestitures is Your Best Way to Combat Value Leakage

Corporate Finance & Restructuring

April 24, 2019

M&A transaction activity has been on the rise, as more companies consider growing through acquisitions while divesting parts of their businesses that do not align with their overall strategies. With global and domestic M&A activity at an all-time high during the first half of 2018, it is more imperative than ever for companies to be prepared to execute transactions efficiently and effectively, thereby maximizing enterprise value.

Most large organizations have corporate development teams for this purpose, hiring top talent with investment banking and transaction advisory backgrounds. But because healthy companies tend to focus on growth, corporate development teams often are not as well equipped to execute divestitures as they are acquisitions. Carve-outs are intrinsically more complex transactions which present a greater risk of missing initial deadlines and prolonging the overall amount of time spent on the deal. This in turn increases the amount of “value leakage” incurred during the transaction period. Value leakage, a commonly overlooked metric in a divestiture, refers to the total value lost between the time an asset sale process is initiated to its consummation. This can come in the form of personnel costs, one-time costs, or diminished enterprise value. Implementing a customized divestiture framework can help companies sell assets more quickly, minimizing the risk of value leakage and maximizing the final selling price.

This paper will focus on the four primary areas that serve as the backbone of a well-structured divestiture framework: Governance, Cross-functional Work Plans and Processes, Tools and Templates, and Technology. Although the final framework will vary based on each company’s particular needs and strategies, the primary themes within each of these components apply across all organizations pursuing divestitures.


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