Chairman's Message - July 2020
By Mark Herndon, Chairman of the M&A Leadership Council
As a general rule, I try to avoid predicting the future. However, a consistent theme seems to be resonating right now as we are talking with Council Alumni. We have also compared their inputs with various media and analyst reports. The feedback we hear is that increased divestitures may be on the horizon over the next 6-18 months.
From a strategic standpoint, this is perhaps the one thing about our current environment that is not entirely unprecedented. Based on data from the 2008-2010 global financial crisis. We saw companies in diverse sectors move methodically to revisit portfolio holdings, strategically divest to pay down debt, allocate more limited capital to core growth units, and acquire new technologies and invest in more focused growth opportunities.
Herein resides a significant organizational and operational execution challenge. Relatively few organizations divest frequently enough to develop a true internal capability or skill set to succeed when it’s time to divest. Simply put, divestitures are not “acquisitions spelled backwards,” and many highly experienced companies point out that BOTH divesting AND buying/integrating a divested unit (carve-out) is harder than a typical acquisition.
There are many reasons why divesting a business, then integrating the carved-out unit are among the toughest of all MA&D challenges. Here are just a few of the many vital issues we will be addressing in two crucial upcoming divestiture training and education events during August.
- The divestiture lifecycle and “value-curve” are different. Seller's intent on maximizing sale value must not only work early and diligently to prepare the business for sale but also support the Buyer with a meaningful separation plan framework in advance. Likewise, the Seller’s fun is just beginning – not concluding - at transaction close, since one of the most significant challenges is optimizing the cost structure and performance of the remaining business.
- The Transition Services Agreement (TSA) is both typically necessary, and notoriously difficult to develop, cost, gain agreement on and administer to a desirable and satisfactory exit without turning to hand-to-hand combat between the parties.
- Highly intertwined and complex corporate shared services. Since the business to be carved-out is typically supported by complex, intertwined services, systems, processes, and data operated and retained by the Seller, these services must ultimately be replaced by the Buyer as quickly as possible post-close. Doing so requires detailed planning and a clear understanding of precisely what is coming over in the transaction. The Buyer must then operate it on Day 1. What must be started “net-new” or “stood-up” by the Buyer; otherwise “cut-over” within an acceptable, but limited time-frame, and in a way that ensures full business continuity and no disruption.
- Employee Engagement. While no acquisition is straightforward from an Employee Engagement and Experience perspective, nd attrition is always a risk, expect employees in divestiture originated carve-outs to be among the most at risk and change-resistant. Be on the look-out for a range of potential emotional, psychological, and organizational change challenges such as the perception of being “the loser” and fears of a subsequent sale.
Given these and many other risks and challenges on the divestiture / carve-out journey. The M&A Leadership Council is committed to supporting you and your company with the essential task of ensuring your internal MA&D teams are ready by hosting these two important events.
- First is a free webinar on August 11th titled, “How the Best Spell Divest.” (Hint: it’s NOT acquisitions spelled backwards!). This webinar will be facilitated by an expert panel focused on critical insights and lessons learned to help your organization plan, transact, and execute divestitures successfully.
- Second, the return of the popular M&A Leadership Council executive training program, The Art of M&A® Divestitures and Carve-Outs - Online, December 1-3, facilitated by our outstanding partner organizations and built around peer-to-peer networking, group discussions, and case studies.
We look forward to seeing you at an online M&A training event soon!
Very Best Regards,
Chairman, M&A Leadership Council