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Accenture identifies five leading practices to help oil and gas companies manage a successful divesture or carve-out process.
Acquisitions and divestitures have been part of the norm in the oil and gas industry for decades. But while the acquisition side of corporate reshaping is well studied and there is a lot of industry knowledge about how to acquire businesses and integrate them, effective divestiture practices are not nearly as well known or widely used.
The reasons behind divestitures are clear: They are typically pursued to generate cash so that companies can invest in more promising parts of the hydrocarbon value chain, reduce their exposure to a particular part of the value chain, or exit areas of activity where they no longer have a competitive advantage. As a result, several peripheral industries—such as independent refiners, petrochemicals producers, pipeline operators and oil field services companies—have grown into major industries in their own right.
Margins across the value chain have been a key driver of this development. The very real threat of oil costing $10 a barrel in the late 1990s was a key driver of the supermajors’ strategy to drive down cost by exiting non-core activities in exploration and production, which preceded the snowballing growth of the oil field services industry. Similarly, since the end of the Golden Age of Refining in 2007, the oil majors have accelerated divestments in refining.
Where oil majors have been big sellers of assets that no longer fit their strategies, a wide range of buyers have apparently found those assets to be an excellent fit with their own strategies. Not surprisingly, Asian national oil companies have been amassing upstream assets to secure access to resources; but they have acquired downstream assets as well. For example, PetroChina has been pursuing deals in areas as diverse as Scotland and Latin America. Even airlines have entered the game, as seen with Delta’s 2012 acquisition of the Trainer refinery located outside Philadelphia.
Regardless of a company’s reasons for selling its assets—and the buyer’s reasons for acquiring them—there are five leading practices that can lead to faster, smoother carve-outs and transitions and let the seller ask for (and get) premium prices.
Put yourself in the buyer’s shoes. Performing a due diligence exercise to understand how a buyer would view the separating business can help the seller shape a more attractive package. This exercise can also guide the separation activities.
Manage the critical paths. Even a simple divesture is complex, so keeping a good picture of what will be involved can make it easier to manage the multiple activities related to the four main aspects of separation: operational, organizational, support function and legal.
Right-size the support functions. Teams working on the carve-out need to resist the temptation to recreate the support environment of the parent company: the activities of the separating company are likely to be very different from those that the parent company’s support environment was created to support.
Be proactive about IT separation. Investments in creating integrated landscapes may make carving out an asset or business more challenging. Start early on thinking about how to create a fully functional IT system that will support the separating business only as long as necessary. Avoid creating a legacy system that potential buyers may not want or will find burdensome.
Tackle transition service agreements head on. A seller that overlooks transition services agreements can limit the number of bidders for the business and end up tangled in complex relationships with the eventual buyer. A seller is often better off if it understands exactly what services it will provide, when, how, and for how long.
Sanjiv Mehta is a member of Accenture’s Corporate Strategy and Mergers & Acquisitions practice. He has been involved in over 30 deals across the M&A lifecycle in strategy, corporate development, management consulting and investment banking roles. He is based in Chicago.
Markus Rimner leads Accenture’s Corporate Strategy and Mergers & Acquisitions practice in the Nordics. He advises corporate and private equity clients through the entire M&A cycle, focusing on acquisition and alliance strategies, divestitures and carve-outs, commercial and operational due diligence, and integration planning. He is based in Gothenburg, Sweden.
January 2, 2013
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