The Acquisition and Divestment Strategy

The acquisition and divestiture strategy is one of the most complicated aspects of managing an M&A process. It requires constant evaluation to determine the difference the difference between core assets and non-core ones. Without a clearly defined strategy and a well-thought out divestiture plan, costs of acquiring a company can be higher than its value by a significant margin. Similarly, the cost of retaining non-core assets can be more than their value. This is the reason it’s crucial for managers to put the necessary resources into preparing and structuring divestitures.

The first step of the process of selling involves identifying potential buyers for an asset. This is done by using financial modeling and discounted cash flow (DCF) analysis. Finance professionals are usually involved in this process.

After the company has found a buyer, it can begin negotiations for the sale. This is a crucial step in ensuring the business can sell the asset at a fair cost. After the sale is complete the company will get an inflow of cash. This cash inflow is usually used to grow existing business divisions or pursue new business lines. It can also be utilized to pay down debt.

A common reason for a divestiture is to eliminate an unprofitable business line. This type of divestiture typically involves a carve-out in where the parent company keeps an ownership percentage, or spin-offs, in which the subsidiary is sold to shareholders as a separate entity. In both cases, maximizing value is the goal. A successful divestiture requires a solid plan for communicating and considering the needs of employees following the transition.






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