Chairman's Message, February 2017
By Jim Jeffries, Chairman M&A Leadership Council
All indicators point to an increasing level of divestitures for the foreseeable future. Most top executives strongly agree that they are more likely to consider a divestment today than in past years.
So what are the traditional practices that are most likely to make a divestment more attractive?
1) Shared interest – show how you can help preserve the value of the divested entity, reduce uncertainty around the sales process, minimize the management distractions that might affect interim performance, insure a smooth separation and avoid TSA disputes.
2) Create accurate financial reports for the entity as a separate unit. Getting this information in shape should be a top priority. Carve-outs are the most difficult, especially if the financials have been intertwined with the mother ship for a long time. However, proper cost allocations and accurate pro forma’s on profitability and cash flows are critical advantages for speeding the sell process. The seller must be able to articulate a clear value proposition.
3) Pre-disposal restructuring – there may be a beneficial trade-off between an urgent, rapid disposal and potential increased value achieved by utilizing a longer sell process. A unit with the ability to extend its timetable may be able to realize significant benefits by enhancing the attractiveness of the business. Operations improvement and cultural readiness initiatives could pay big dividends during a deal delay. Driving up cash while reducing excess working capital often makes sense before trying to attract new buyers.
4) Demonstrate a fully-functioning business that can be delivered to a buyer. Build a detailed stand-alone operating model reflecting a comprehensive pro forma cost structure, as well as the activities that will be internal, outsourced and transitioned from the parent. These models allow potential buyers to better value the business and lend credible support to forecasts.
5) Cultural fit and assimilation readiness – as referred to in number 3 above, few sellers have learned the art of advertising their culture (intangible assets). Yet, culture is the most often blamed source of lost value after the merger. Every seller should be able to articulate and document the intangibles of the business. There is nothing that will contribute more to the value of the divestiture than an objective view of the organization’s ability and willingness to migrate, maintain the customer base and take on the new roles and responsibilities.
You're invited to join us for The Art of M&A for Divestitures and Carve-Outs, a truly unique opportunity for M&A professionals. Along with your peers from the M&A community, you'll learn from true experts who share practical, real-world advice and insights on the divestiture process.
Very best,
