Ernst & Young ran an extremely useful report earlier on “How to capture more value from divestitures.” (Full report here)
Among the key takeaways:
- Don’t wait for a buyer — make a move before you’re forced to act
- Use divestment proceeds for an acquisition
- Prove divestment value to your investors
- Less need for speed: big change over last year
- Consider all potential buyers
In particular, the report — led by Paul Hammes, EY Global Divestiture Advisory Services Leader — focuses on private equity’s role: “Private equity (PE) firms are skilled value-finders. They are serial buyers and sellers, expert at locating hidden upside in companies. They often exit at a multiple that is many times the original purchase price. As key board members, they have an innate understanding of their portfolio companies’ inherent value and whether to continue to invest or if it is time to divest.”
“While corporations have a different core mission from PE rms, they can learn lessons from PE on how to maximize shareholder value. Corporates face particular challenges in maximizing value from divestments: some companies may be too opportunistic, reacting to an interested buyer rather than thinking strategically about who might be the best acquirer. Many are reluctant to invest management time in an asset they plan to sell, or they may be unwilling to allocate scarce capital to such businesses. Yet by failing to properly prepare assets for sale, companies only make them less appealing to the next owner.”
For a useful video summary of the report, check out their “One Minute Recap” here (it actually runs about four minutes):