The Acquisition and Divestment Strategy

The acquisition and divestiture strategy is among the most complex aspects of managing an M&A process. It requires constant assessment to discern between core assets and non-core. A well-executed plan of divestiture and a clearly defined strategy can assist in reducing the cost of acquisitions. The cost of maintaining non-core assets can also outweigh the value. It is important that managers allocate the resources necessary to prepare and structure divestitures.

The initial step in a divestiture is to identify potential buyers for the asset. Financial modeling and discounted cash flow (DCF) analyses are used to achieve this. Typically, this process is performed by finance experts.

The process of selling can begin once the company has identified potential buyers. This is an important step to ensure that the company sells the asset at a fair price. When the sale is completed the company will get an enormous cash flow. This cash infusion is typically used to expand existing business divisions, or pursue new business lines. It can also be used to pay off debt.

A common reason for a divestiture is to eliminate a non-profitable business line. This type of divestiture usually is a carve-out where the parent company owns some ownership or a spin-off where the subsidiary was sold to shareholders. In both cases, the aim is to maximize the value. A successful divestiture will require a solid plan for communicating and an understanding of the needs of employees following the transition.

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