The acquisition and divestiture strategies is among the most complex aspects of an M&A process. It is essential to continuously examine assets to differentiate between noncore and core assets. A well-executed plan of divestiture and a clearly defined strategy can assist in reducing the cost of acquisitions. The cost of maintaining non-core assets can also outweigh the value. It is essential that managers invest the resources needed to prepare and plan divestitures.
The initial step in a divestiture is to identify potential buyers for the asset. This is accomplished through financial modeling and discounted cash flow (DCF) analysis. Typically, this step is carried out by finance professionals.
Once the company has identified the buyer, it can begin to negotiate an offer. This is an important step to ensure that the company is able to sell the asset for a fair price. After the sale is completed the business will receive a large cash inflow. This capital influx is often utilized to expand existing divisions, or to pursue new avenues of business. It is also utilized to pay down debt.
A divestiture can be done to end a non-profitable company. This type of divestiture usually is a carve-out where the parent company owns the majority of ownership, or a spin-off process in which the subsidiary was sold to shareholders. In both cases, the aim is to maximize value. A successful divestiture will require a strong communication plan and taking into account the needs of employees after the transition.
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