Despite their huge potential to generate value, divestitures rarely achieve the expectations. This article outlines how companies can improve their odds of success and shift their portfolios to higher gear.

The Right Time

When managers realize that a particular asset does not meet strategic goals, it’s right time to consider selling. People who wait for the right time are at danger of a steady loss of performance and lower purchase prices.

It is vital to be clear with employees on the intentions and implications of a divestiture. It is crucial to explain the reasoning behind the decision and ensure that employees are aware that their careers will not be affected. It is also important to inform top customers within 48 hours of the announcement, and to establish a specific procedure for handling problems that arise post-close.

A well-timed sales allows companies to repurpose their resources and invest in core areas of strategic importance. Neste, an Finnish oil company, changed its name in 2015 to reflect its emphasis on renewable energy. It invested the proceeds from selling natural gas and oil businesses. The company was capable of doubling its share returns in just five years.

The top divestors in the industry screen their companies’ portfolio for potential candidates regularly and have teams dedicated to this work. The teams typically comprise people with specialization for example, the separation of accounting systems and the implementation of service-level agreements between the remaining company and divested business. Additionally they conduct an in-depth analysis of the value that is created by any entanglements or links between the business being sold and the remainder of the portfolio.

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