Selling non-core businesses – How to optimize value creation?
Key takeaways from our report:
- Create value
Research shows that businesses that engage in regular divestitures create significant shareholder value down the road. Actively pruning the business portfolio reduces complexity, sharpens the operational focus and generates cash for the next phase of growth. Also note that a pure play is easier for investors to understand.
Most businesses are set up to buy assets, not sell them, which means decisions to sell are often made at the wrong time or in the wrong manner. The key is to avoid ad-hoc or reactive decisions, and to carefully manage and prepare the planned divestiture so that it supports the company’s core strategy. Don’t let emotions get in the way. View divesting as a strategic tool.
- Plan & prepare
We are seeing higher valuation multiples and faster closings for assets that have been properly prepared – ie. made attractive to potential acquirers. This means setting up a control centre so the process is run professionally and systematically. Communicate clearly, promptly, and frequently: inform shareholders and employees about the divestiture early on, and keep them informed as it progresses.
- Target the right buyers
Identifying buyers usually means hiring the right advisors with exposure to the best-owner universe – serious, credible and with genuine sector expertise. Tell a clear and compelling business story. Explain the growth opportunity, the assets’ capabilities, and tailor the potential synergies for investors.
- Sell at the right time
Work out what drives the industry cycle, and time the divestiture to optimize the valuation. For companies, now is an ideal time to consider a sale because valuation multiples are at historically high levels in the mid-market and buyers are acquisitive and sitting on large war chests of cash. Also, the decision to divest needs to be proactive rather than reactive. Executives often hesitate to sell assets, which is leaving a lot of value on the table.