As your company grows, your mind might most naturally incline towards considering what assets you can acquire to generate further growth. One thing that might not immediately occur is the idea of divesting parts of your business.
However, whether it’s to strengthen your balance sheet amid a period of turbulent trading, or to enable you to refocus your business on its core offering, divesting a division of your company can pay as many dividends for long-term growth as acquisitions.
Disposals such as this can not only generate liquidity to contribute to your balance sheet or a chance to refocus, often it will mean streamlining your business as a whole through getting rid of elements that are not performing or that lack synergy with the rest of your firm.
Looking to the longer term, you could even begin to factor divestments into your overall acquisition strategy, by viewing acquisitions as investments to grow and increase in value before making a profit through divestment.
Of course, selling off a part of your business that you’ve potentially worked hard to build or invested a lot of money in is a process that should be handled carefully in order to yield the best possible outcome. Here are three core tips for a successful divestment.
Plan for life after divestment
The last thing you want when you’re selling a unit of your business is to emerge on the other side, post-divestment, and discover that the unit you’ve just sold is far more important to your overall operation than you previously thought.
Undertake a full review of the unit, its interactions with other units, sales, customer and client base and role within the wider business before committing to a sale and, if you do decide to proceed, fully plan out and de-risk the impact of the sale on the wider business and future operations.
Financials and forecasts
While the division you’re offsetting may no longer be vital to your core operations, you clearly still need to make the best case for it to potential buyers, in order to generate the best possible sale price.
Foremost, you will need to have financial accounts for the division covering at least the past three years in order to enable buyers to perform due diligence. This may take a little work as, often the case for smaller businesses, individual units may not have their own sets of accounts. However, a financial picture of the unit independent from the wider business could prove crucial in attracting buyers.
Secondly, forecasts about how the unit might perform in future could also be of great value when attracting a buyer. Using your insider insight, as well as perhaps third-party expertise, come up with detailed forecasts about profits and how a buyer could best extract value from the division post-acquisition.
Dedicate staff to the divestment
As the above points illustrate, divesting a unit properly is not simply a task that your business can fleetingly focus on part-time. In order to ensure a successful, profitable sale it will be important to dedicate time and resources to the divestment.
While you may lack the staffing to set up a dedicated team exclusively to focus on divestments, creating a team that is focused on the sale as one of its major responsibilities will pay major dividends for the sale.
After all, you wouldn’t adopt a piecemeal, occasional approach to an acquisition, so why do so for a divestment that could prove just as valuable in the long-term? With a core team working on a division sale, you will be able to give the process the attention it demands, from planning and forecasting, to marketing, due diligence and negotiations to closing the deal.