The Acquisition and Divestment Strategy

The acquisition and divestiture strategy is one of the most difficult aspects of an M&A process. It requires constant analysis to distinguish between core assets and non-core. Without a clearly defined strategy and a well-thought out divestiture plan, the cost of an acquisition may exceed its value by a significant margin. The cost of keeping non-core assets could also exceed their value. It is vital that managers invest the resources required to prepare and structure divestitures.

The first step in a divestiture is to find potential buyers for an asset. This is done using financial modeling and discounted cash flow (DCF) analysis. Finance professionals are typically involved in this step.

After the company has found an interested buyer, it is able to begin negotiations for the sale. This is a crucial step to ensure that the company sells the asset at an acceptable price. When the sale is completed the company will receive a large cash inflow. This capital infusion is usually used to expand existing business divisions, or pursue new business lines. It is also used to pay down the balance of debt.

The most common reason for a divestiture is to eliminate a non-profitable business line. This kind of divestiture typically involves a carve out, in which the parent company holds the majority of ownership, or a spin-off where the subsidiary was sold to shareholders. In both cases, the objective is to maximize value. A successful divestiture requires an effective strategy for communication and the consideration of employee needs following the transition.