How to Prepare for Divestments

Preparing for divestitures involves a range of processes. Companies must assess their readiness, develop a divestiture pipeline, and gain the commitment of corporate management. Then, a sale must be planned. These processes are vital to the success of any divestiture. Here are some tips to help you prepare for divestitures.

Assessing organizational readiness

There are several factors to consider when assessing organizational readiness for divestitures. First, there is the level of change readiness. The higher the level, the more likely the organization is to succeed with change. This is measured through organizational behaviors related to the implementation of change, such as willingness to initiate change and prosocial behaviors. Change readiness may also be impacted by other factors, such as size, industry, organizational structure, and negative experiences with change.

A third option is to hire an independent third party to conduct an organizational readiness assessment. A third-party organization can look at the company objectively, allowing for a realistic assessment. It can also help identify any additional training or changes that might be needed. Lastly, an assessment can help identify the assets and liabilities that will be affected by the proposed change.

Organizational readiness has been largely overlooked, but research shows that it's an important area for organizations to consider. It's vital to create a strategy that helps your organization achieve its goals and stay competitive in an ever-changing environment. An organization's level of readiness can be assessed through the use of the Lewin theory and social exchange theory.

A good readiness assessment is the first step to quality improvement. After the assessment, you can develop a plan to achieve the desired changes. Developing a strategy to implement the change should also include the needs and perception of your employees. Once the plan is in place, you should be able to make changes that will help the organization sustain itself in the future.

A readiness assessment may require an external audit but it's not always necessary to hire an outside auditor. Depending on your organization's maturity level, you may be able to conduct the assessment internally through your risk officer or auditing director. The risk officer and auditor will be able to understand the controls and gaps within your organization.

Developing a divestiture pipeline

The process of developing a divestiture pipeline begins by screening your company's portfolio annually. This enables you to identify assets that may be more valuable to others. When a company has a portfolio with several undervalued businesses, it can be valuable to sell these assets and redirect the cash to strategic areas.

A divestiture pipeline should be comprehensive. It should include the strategies and activities that you and your buyers will undertake in order to maximize value. In addition to developing a strategy, consider your company's employees' needs and motivations. When preparing for a divestiture, include your human resources department in early conversations and gather employee data and documents. Consider creating surveys or questionnaires to gather information about employees. Also, keep track of the questions and concerns of potential suitors.

A divestiture pipeline should also include a divestment plan. The best companies approach divestitures with the same rigor as they approach acquisitions. Using dedicated teams to focus on divesting, they make detailed de-integration plans for their target businesses and consider the perspectives of employees and buyers.

Once a decision has been made to divest, the next step is to determine the best way to sell the assets. Choosing the best method for a divestiture campaign will vary based on the assets to be sold, the market environment, and the company's goals.

Planning for a sale

Before selling a business or asset, you need to plan for the sale. This is particularly important in the early stages, when you may not know who is going to buy your asset. Focus on the things you do know first, and then start putting in the work to prepare the asset for sale. Once you find a buyer, the process will be accelerated. You will not regret the time and effort you put into planning.

Your plan should include what assets to sell, when and how. To do this, start by performing what is known as "capability scoping" - taking stock of the most important capabilities associated with each asset. These assets are usually products or services within a business unit. In addition to their specific capabilities, you may also have to determine what capabilities are being leveraged or shared with other parts of the business unit.

Before you begin the process of selling a division, you should evaluate its value. You can assess this value by hiring a business valuation advisor. This professional can help you determine how much you want to invest in your business and how much you need to sell. They will also help you determine the optimal selling strategy.

You should also prepare the essential services that your business relies on, like finance, human resources, legal, and information technology. When selling a business, buyers want to know that your business can continue to run after the divestiture. You should have a plan to transition these services to a third-party vendor if necessary.

Getting the best price

When negotiating with potential buyers, one of the main goals of the divestiture is to get the best price for the asset. This often involves taking a fresh look at the unit to be divested, and assessing the upside opportunities that are embedded in the valuation model. The goal is to push buyers to offer a price that matches the multiple of management's adjusted EBITDA.

The first step is to fully define the asset to be divested. This will reduce the risk of leaving money on the table and avoid introducing skepticism among buyers, which can ruin the deal. Also, divestitures that are completed within twelve months of announcement generate higher excess total returns for shareholders than those that are delayed beyond that time frame.

Once the strategy for the divestiture has been developed, determine which assets should be sold and when to do it are the next steps. Capability scoping involves taking stock of all the key capabilities associated with the assets being offered. This is important because buyers often expect a much more detailed due diligence on their assets. For example, they may ask for information on taxes, insurance, and information technology. This means that sellers should be prepared to answer all inquiries.

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