Corporate divestiture gains as value-creator.

• Author: Kelly, Shaun T.
• Position: Strategic Planning

With acquisitions often failing to fuel desired growth, corporation reframing their priorities are looking to divest non-core business units. New challenges are emerging, for buyers and sellers alike. A recent KPMG survey sheds new light.

Divestitures may once have been looked upon as a symbol of failure, but no more. Increasingly, companies are selling non-core businesses to focus on core competencies, divesting business units that no longer fit strategic goals and selling under-performing assets to generate cash. In fact, divestitures are becoming a preferred way to create and preserve shareholder value: 73 percent of senior leaders at Fortune 1000 companies queried in a recent KPMG survey predicted that the annual number of corporate divestitures in the U.S. would rise in the next five years.

But as divestitures carve a greater niche in the market landscape, companies are learning that, contrary to prevailing wisdom, divesting presents challenges not only to the buyer but to the seller, as well. Shedding a business is as complicated and resource-critical to the seller as buying one is to the purchaser. No matter which side of the deal you're on, both parties strive for the same Holy Grail: maximum shareholder return. In the study, 84 percent of participants said companies divest to increase shareholder value (See Figure 1).

But sellers frequently fail to fully comprehend the strategic aims they hope to attain from the deal, leading them to fall short in their responsibility to shareholders. The research indicates that successful divestitures are a product of well-conceived and thorough planning and preparation. Leaders who follow a rigorous and systematic process can make divestiture a first-choice strategy rather than a last-resort reaction to events.

While mergers and acquisitions tend to have a higher profile, divestitures are deemed just as important to corporate strategy, say the survey participants. Fully 88 percent of the senior executives agreed that divestitures can be part of a progressive corporate strategy.

Companies can pursue divestitures to reverse earlier efforts to diversify through acquisition. Eliminating an under-performing asset permits management to concentrate on--and free up capital for--its core competencies and businesses.

How Leaders Divest

Some 78 percent of the survey participants cited the straight sale as the most popular and effective divestiture strategy. A distant second, at 33 percent, was the spin-off...