Window of Opportunity: Divesting in Challenging Times

For strong companies, difficult market conditions can represent a window of opportunity to tailor their business portfolios through divesture and accelerate the drive to achieve high performance. Accenture identifies four basic steps that should be followed and the leading practices that can help ensure success.

High-performance businesses recognize that long-term success requires gaining and shedding assets and capabilities as conditions warrant. But can divesture be part of a strategy for high performance in the current economic environment?

For a minority of companies, difficult market conditions present an opportunity to tailor their business portfolio via divestures and raise capital for acquisitions—a limited window of opportunity for the strong to accelerate their pursuit of high performance. But for the majority, divesture plays a survival role by helping conserve cash and reduce costs during the recession.

How, then, can companies improve the results they get from divestiture and do so in an accelerated time frame?

When developing its divestiture strategy, a company should comprehensively assess its corporate portfolio to identify opportunities for value creation. This entails four basic steps:

• Aligning assets with the business’ best opportunities. This step begins with a careful study of the growth opportunities for the business as a whole, paired with an understanding of the potential value of each unit to an external buyer.

• Developing a timing strategy for the separation and divestiture transaction. In most instances, it is best to start with the carving-out of a business unit before, or at least in parallel with, the sale process.

• Understanding the boundaries of assets being considered for divestiture. A company must take into consideration the strategic fit of the business unit as a whole and its constituent parts within the parent company.

• Packaging those assets for maximum value. The final step is to make the divestment target as attractive as possible to the most likely acquirers.

Once it is clear which assets to divest and how they should be packaged, a number of leading practices can help ensure successful execution. To start with, it is critical to avoid underestimating the impact of divestiture on daily business and, subsequently, put effective program management in place to handle this impact. Second, a company must plan for the future success of the divestiture target, and make sure accountability between the parent company and the to-be-divested organization is clearly defined. Finally, it is vital for a divesting company to maintain an open dialogue and stay flexible as the transaction unfolds.

Other important practices include:

• Strong program management. A divesture is not business as usual: different skills and additional capacity are required for success. In turn, strong program management will be required to keep the process on track and ensure business continuity.

• Future success. Begin planning for the future success of the divesture target identifying the functions and people needed to support the divested business unit once it becomes independent.

• Accountability. In Accenture’s experience, problems often arise when the selling company and the unit to be divested fail to agree on which party is responsible for making the transaction a success.

• Flexibility. It may be tempting to settle on a specific divesture formula early on in the process, but the most successful divestures are those in which both organizations pursue different paths for as long as they can to help maximize the value to be gained from the deal.

Andy Tinlin, a senior executive in Accenture Strategy, leads the company's global Mergers & Acquisitions group. With nearly 20 years' experience in consulting, Tinlin works with the boards of leading clients to help address their strategic and operational issues in areas such as growth strategy, M&A and business transformation. Before joining Accenture, Tinlin held a number of management positions in commercial organizations. He is based in London.

Mirko Dier is a senior executive in Accenture's Growth Strategy group and global lead for our Merger Integration unit. He joined Accenture in 1995 and works with leading clients to solve the strategic and operational problems involved with corporate strategy development, merger and acquisition engagements, post-merger integration and business transformation, especially in the resources industry. He is based in Munich.

Kelly Good is a senior executive in Accenture’s Growth Strategy group and is the lead for the merger integration unit in North America. She has more than 15 years’ experience across the spectrum of M&A, merger integration, divestiture, portfolio management, corporate transformation and strategy consulting with Fortune Global 1000 clients. Good has extensive cross-cultural experience and has led close to 20 major cross-border transactions across industries in North America, Europe and Asia Pacific. She is based in San Francisco.