Spin-Offs Offer Opportunities for High-Value Growth
by Jim Jeffries, Chairman, M&A Leadership Council
In the recent past, more corporations are managing their businesses as a portfolio with many moving parts rather than attempting to grow into static behemoth brands. Therefore spin-offs have become a type of divestiture that is just as strategic for high value growth as acquisitions. A spin-off is a form of divestiture that typically can generate new value by demerging current business units back to shareholders in order to operate them more independently.
It's important to remember that a spin-off isn't simply an "acquisition in reverse." However, many of the same best practices in acquisitions also apply to spin-offs and other types of divestitures. Here's a look at a few important best practices.
Front-End Executive Exercise
Similar to the pre-announcement Game Day concept our seminar attendees are introduced to, it is highly beneficial to conduct a front-end executive exercise (probably a 2-day, cross-functional session) that is focused from a high-level, strategic standpoint on the spin-off. Attention should be given to getting the executives aligned and mobilized as to the scope of work to be done; a review of best practices and lessons learned in successful spin-offs; the processes and approach to be used; identification of major issues, concerns and priorities to be addressed; creation of a high-level plan; assignment of team leaders for each major work stream; and identification of critical success factors and key performance measures.
Dedicated Team
As with M&A integration activities, a dedicated team of resources should focus on managing the specific projects and activities involved in the spin-off, remaining separate from those who need to focus on running the day-to-day business while the spin-off transition activities are going on. This will require setting up a Program Management Office (PMO) with the proper staff, processes, toolkit, metrics and other critical components of rigorous project management in place.
“As Is” Assessment
In our experience many of the back-office corporate functions cross business lines so it will be necessary to do a complete and detailed “as is” assessment of the business to be spun-off to determine how all the support and operating functions are performed today (staffing, processes, organizational structure, IT systems) and what the implications are for running the spun-off business as a separate stand-alone entity. This leads to myriad planning and implementation activities that need to be done in order to carve out and run this new business as a self-sustaining separate entity.
Future Business Operating Model
Coming out of the “current state” assessment will be the need to create the future business operating model for the spun-off company -- staffing, organization design, systems, processes, etc. The implications are several fold:
- Often negotiations need to be conducted as to which staff will stay with the Mother Ship and which will be transitioned to the “new business”
- There will often be new corporate functions that need to be created for the stand-alone that were not necessary when it was part of a larger whole
- There must be consideration for a Transition Services Agreement to continue supplying the spun-off corporate services until the new entity can either recreate them or the entity becomes a high-value divestment opportunity
Consider the spin-off to reinvigorate the corporate portfolio. To learn more about how spin-offs and divestitures can fit into your company's growth strategy, join us at The Art of M&A for Divestitures and Carve-Outs. We look forward to seeing you there!
Very best,
Jim