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The Acquisition and Divestment Strategy

By 18.10.2023No Comments

The acquisition and divestiture strategy is one of the most complex aspects of an M&A process. It requires constant evaluation to distinguish between core assets and non-core. Without a clear strategy and well-executed divestiture strategy, the cost of an acquisition can exceed its value by a significant margin. Additionally, the cost of keeping non-core assets can be more than their value. This is why it’s vital for managers to put the necessary resources in preparing and structuring divestitures.

The first step of a divestiture is to find potential buyers for the asset. Financial modeling and discounted cash flows (DCF) analyses are used to accomplish this. Finance professionals are usually involved in this process.

Once the company has identified an interested buyer, it is able to proceed to negotiate a sale. This is an important step to ensure that the company is able to sell the asset for a fair price. After the sale is completed the business will receive an inflow of cash. This capital infusion is usually used to expand existing business divisions, or pursue new business lines. It could also be used to pay off debt.

The most common reason for a divestiture is to eliminate a non-profitable business line. This type of divestiture usually involves a carve out in which the parent company holds a percentage ownership, or a spin-off, in which the subsidiary was sold to shareholders. In both cases, maximizing value is the aim. A successful divestiture requires a robust strategy for communication as well as taking into account the needs of employees following the transition.

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