What is Divestment?

The term ‘divestment’ is often used to describe selling a business. Divestments may take many forms including, selling of company assets, business units or shares. Partial or full divestments can occur, depending on the reason for sale or objectives of the vendors.

Why Should Business Owners Consider Divestment?

It is worth mentioning that 78% of companies expect to divest within a 24-month time frame and 57% within the next 12-months. A lot of business owners choose to divest in order to ensure that their portfolio is in alignment with their financial goals and ethical considerations.

Moreover, business owners are increasingly considering divestment for strategic reasons rather than just financial motivations. Specifically, they are using divestment as a way to increase efficiency with their operating models and as a result, reinvest this into new products. Or perhaps, it is that time to move on or retire and therefore, divestment provides you with the opportunity to pass on the torch and reap the benefits of your business.

Reasons Why Business Owners Choose to Divest:

Business owners divest for a variety of reasons and will vary heavily depending on circumstance. Therefore, the most common reasons why business owners divest is to:

  • Reduce business operations and focus on profit-making areas
  • Cut out redundant business units
  • Promote cash flow by selling off business assets
  • Generate value by splitting one company into separate entities
  • Comply with regulations
  • Meet the demands of shareholders on ethical or social guidelines
  • Make the business more appealing to new investors
  • Increase the resale value
  • Ensure the stability or even survival of the business
  • Provide financial resources for retirement purposes

Important Steps to Consider When Divesting:

Divestment differs from acquisition, you require operational knowledge and an understanding of the common pitfalls in order to successfully sell a business or any of its assets. Here are some important steps to consider when divesting:

  1. Follow a structured divestment plan to avoid disrupting employee performance in the current business environment.
  2. Form a dedicated team for the separation process. In particular, ensure that the executives have operational knowledge of the business and are prepared to work with set deadlines
  3. Conduct a thorough preparation for sale. Such as producing consistent and clear financial information and having all key information ready and presentable for a potential acquirer. As a result, you may want to consider engaging an experienced advisor to ensure you maximise your divestment value.
  4. Finally, keep up regular communication with employees to assist them in managing any divestment-related cultural change.

Want to learn more? Here at BUSINESSNAV, we are experts in divestments, capital raise and acquisitions.