The Acquisition and Divestment Strategy

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The Acquisition and Divestment Strategy

The acquisition and divestiture strategy is among the most complex aspects of an M&A process. It is vital to constantly examine assets to differentiate between noncore and core assets. Without a clearly defined strategy and a well-thought out divestiture plan, the price of an acquisition could exceed its value by a significant margin. In the same way, the cost of keeping non-core assets can also exceed their value. It is crucial that managers invest the funds required to prepare and structure divestitures.

The initial step of a divestiture involves identifying potential buyers for an asset. Financial modeling and discounted cash flow (DCF) analyses are used to accomplish this. Typically, this procedure is carried out by finance professionals.

After the company has found a buyer, it can start negotiating an offer. This is a crucial step in ensuring the company is able to sell its asset for a fair price. The business will receive a substantial amount of cash following the sale. This capital infusion is often used to increase the size of existing divisions or to pursue new business lines. It is also used to pay off debt.

A divestiture may be performed to take down a non-profitable business. This type of divestiture usually is a carve-out which the parent company holds an ownership percentage or spin-off, where the subsidiary is sold to shareholders as an independent entity. In both cases, maximizing value is the goal. A successful divestiture requires a solid plan for communicating and taking into account the needs of employees following the transition.

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