Divestitures play — or should play — a key role in many companies’ growth strategy. Leading companies consider divestments as fundamental to their business strategy – they focus on selling assets in the same rigorous way they focus on acquisitions.
These companies often carve out or spin off a business unit and redeploy capital raised to strengthen their core business and reinvest in high-growth areas. Divestitures, then, can be a primary lever to align your company’s portfolio with your core focus and capabilities.
Meanwhile, family-owned companies may sell their businesses to fund their retirement, support future generations or to find a partner who will protect the legacy of the business.
Some of the common questions we hear from our clients are:
What is driving the appetite for divestments?
What should I sell to reposition my business in the market?
How can I optimise my divestment strategy to raise capital for future investments?
How can I sell non-core assets to preserve capital and help digitally transform my business?
How do you make the decision to divest?
Do you have the right tools and talent to maximise your divestment outcome?
How can I sell assets at optimal prices?
There are three main ways for a company to exit a business — through a trade sale, spin-off, or flotation (IPO):
1. Trade sale: the sale of a business to another company for a combination of cash and stock. It is often conducted through an auction process to facilitate competitive bidding.
2. Spin-off: this involves creating a new business out of an existing part of the company. Shares in the new entity are distributed directly to a company’s existing shareholders.
3. Flotation: also known as an equity carve-out or IPO, the former parent company or the new entity sells a portion of its business to public shareholders, while typically retaining some interest in the company.
The best option depends on a variety of factors depending on the parent company, the business being sold, and market conditions at the time of the transaction.
However, almost half of all divestitures fail to realise value for their shareholders. This is because many corporations treat divestitures as an afterthought, focusing only on doing a deal rather than structuring that deal to maximise value.
Henderton provides support throughout the entire divestiture process. We work with you to craft the value story and deal model, market the business to buyers, develop carve-out financials, prepare transition service agreements, and develop operational separation plans.
Our advisors have experience with leading, developing and executing divestitures, as well as the ability to bring deep functional expertise as needed, in areas such as operations, sales and marketing, HR, procurement, finance, and information technology.
A lot goes into selling a business, including building a business plan, doing vendor due diligence, creating the equity story and marketing materials, and negotiating the sale. It’s a complex process which benefits from an external, independent perspective.
Henderton assists with private sales, initial public offerings, and spin-offs, often joining forces with already involved legal firms, banks, and other financial services firms. We support our clients at every stage of the deal lifecycle, from evaluation to execution and integration, acting in both buy-side and sell-side roles.
We offer a four-pronged divestiture process: corporate portfolio strategy, preparation, due diligence and execution, and separation and value capture:
Corporate portfolio strategy: we help clients prepare for divestitures by reviewing their portfolio and asset boundaries to assess strategic fit, identify potential opportunities or transaction alternatives, develop an equity-value story for the transaction, and shape the governance and organisation of the new enterprise.
Transaction management: setting up the steering committee, creating a transaction management office, communications and change-management plan, stakeholder management and overall supervision of the process, planning, status reporting and execution.
Business case: development and validation of the asset’s business plan or robustness of the one-off, on-going, and stand-alone cost assumptions and estimates in the existing plan. This process identifies operational value levers and identifies areas which may need improvement prior to going to market.
Indicative valuation: determine an initial valuation of the business or asset based on the appropriate method, combining financial and past transaction data.
Equity story and marketing materials: preparing the growth story, ensuring that end markets are understood, and competitive advantages are properly articulated. Preparation of information memoranda, management presentations, road shows, and other transaction documents.
Investor roadshow: Identifying and approaching potential buyers who would benefit from the business to be divested given their capabilities’ fit with the target, and preparation of financial, HR and operational information based on the understanding of the buyers’ needs and priorities.
Vendor due diligence: an in-depth, but independent and unbiased report on the business’ financial health for potential buyers to speed up the divestiture process. It involves challenging the market attractiveness of the asset along with analysing the competitiveness of its business model and the defensibility of its margins, growth, and market share, and highlights areas in advance which buyers might use to reduce their bidding price.
IT due diligence: assessment of the ability of the IT systems and infrastructure to support the stand-alone business.
Value capture: maximising exit value through the early and thorough identification of adjustments to EBITDA and working capital, assisting with tax structuring considerations, and unlocking value through operational improvements.
Documentation: input into key documents, including information memorandum, sale and purchase agreements, transition services agreements and supply agreements.
Target operating model: development of an organisational design and separation road map for key functions, including finance, HR, sales and marketing and accounting, to create a cost efficient, stand-alone operating model, supported by an efficient IT environment.
Capability development: capability building including talent selection and retention to shape the culture of the new entity, change management and organisational capability development, and interim leadership where necessary.
Negotiation advisory: development of a clear negotiation strategy, translating all due diligence insights into commercially relevant arguments and fact-based positions for purchase price adjustments, and negotiation of the price and conditions for the deal through to completion.
Separation planning: identification of inter-company dependencies and separation risks, and design and management of the carve-out process, including robustness of separation plans, definition of commercial requirements for any transition or service level agreements and minimisation of any stranded costs for the parent company.
Readiness assessment and day-one planning: assessment of financial, tax and operational risks and the critical considerations for day-one readiness, including employee, customer and supplier retention, IT, and infrastructure.
Post-merger integration: (for trade sales) ensuring strict EBITDA focus while integrating the organisation, culture, systems, and processes to develop and realise synergies, and provide clean room support.
Carve-out: (for spin-offs) separation of the organisations, segregation of duties, establishment of governance structures, development of stand-alone financial reporting, de-coupling of systems and processes, separation of operations, analysis and review of separation costs, and M&A lead advisory and project management.
Optimisation of the remaining business: improvement of the remaining vendor's remaining core operations and cost structure to focus on future growth, including opportunities to invest in the core business, reduce leverage and improve working capital.
If you would like to learn more about our experience, please contact our Transaction Advisory team.
We have experience on both buy-side and sell-side advising both management teams and investors across a range of geographies. Deals we have advised on include:
Want to learn more about how we can help you grow?
Want to learn more about how we can help you grow?