Do you have the right tools and talent to maximize your divestment results? Read EY’s divestment study to learn more.
78% of companies prioritized securing the best price over speed of execution.

While most companies prioritized securing the best price over speed of execution in their most recent divestment, achieving that expected value can be a significant challenge. Most sellers think the price gap between buyer and seller expectations is between 11% and 20%.

Strengthening the business to be divested, developing the equity story and executing a seamless separation process should be the highest priority for any seller.

Many companies miss out on opportunities to improve value in their divestment process. For example, 62% of companies commonly lose value by not fully developing diligence materials and not being flexible with the sale structure. And 42% say that not presenting the business as stand-alone entity ‘scared off’ potential buyers, or it prompted them to estimate more conservative stand-alone costs and offer lower bids.

Companies that continue to create value in a business they intend to sell are 27% likelier to beat their sale price expectations, highlighting the importance of showing sustained improvements to the business before buyer diligence begins. Analytics can also help companies create value pre-sale. Those sellers that leveraged analytics in their pre-sale preparation were 59% likelier to achieve a sale price above expectations. For 21% of sellers, the initiative that created the most value was providing potential buyers with the output of their advanced analytics; it enables buyers to identify growth opportunities that support higher valuations.

Analytics can also help companies shorten the diligence period, minimize the need for transitional service agreements (TSAs) and demonstrate the business has been capitalized, operationalized, and properly prepared for sale. By using analytics pre-sale, companies help buyers identify where they can generate future growth opportunities. This could include identifying opportunities to grow revenue, such as new customers or markets; improving operations to deliver better margins; or rightsizing or outsourcing the workforce.

Presenting synergy opportunities is one of the top ways sellers say they created value in their last divestment, and buyers from other sectors are part of that equation. With 41% of companies expecting the number of buyers outside of their sector to increase, how can you make the most compelling case to the widest potential pool of buyers?

Sellers must combine the necessary sector and technical expertise to put themselves in buyers’ shoes — particularly those in another sector — to understand the benefits of the acquisition. Sellers can increase deal value by identifying:

  • Customer overlap and related cross-sell opportunities
  • Supplier alignment to highlight potential purchasing synergies
  • Operational footprint and cost base to identify potential rationalization opportunities and ultimately cost savings

Potential buyers expect detailed information on business value drivers — so sellers should determine what data is needed and share it. Only 57% of sellers presented synergy opportunities to buyers, but this was the activity that the largest group of sellers we surveyed (26%) say created the most value.

Creating a clear vision of a post-sale stand-alone business is vital to deal value: 42% of companies say failing to do so was a source of value erosion in their last divestment. Here we outline common separation mistakes and why it’s so critical to take the right separation approach.

Sellers should complete their tax assessment before the buyer develops its own quantified model. In our survey, 35% of executives indicated that over the last 12 months highlighting tax upsides to purchasers better enabled them to drive value. We recommend that companies take the following approach:

  • Conduct exit workshops to identify potential buyer types and any tax data they may require
  • Present both tax challenges and upsides to make buyers more enthusiastic about the potential of the purchase and less likely to propose a conservative price
  • Assign resources to assess tax exposures across multiple work streams and geographies
  • Understand how the tax operating model and effective tax rate associated with the business’s supply-chain structure will affect a buyer’s effective rate and cash flow post-transaction
  • Investigate the largest jurisdictions that are material to the deal when resources or time is tight
  • Emphasize the upside by building out a buyer’s potential tax benefits

In light of recent global tax policy changes, sellers must stay agile in their approach to divestments. In particular, companies should remain flexible about deal structure, keeping the buyer’s tax position in mind (e.g., asset sale versus a stock purchase) to mitigate tax risk and secure superior value.

Nearly one-third of sellers say they need better communication strategies during deal execution. Communication fosters greater collaboration and performance across functions, from tax to human resources to corporate development.

Create a stakeholder communication plan

Only 53% of companies say they created a stakeholder communications plan. This should be a universal feature of the divestment process — preparing communications for all constituencies, including investors, staff, management, customers, suppliers and the market in general. Sellers must consider that confidentiality, timing and content will be different for each constituent.

Focus on the management team

Surprisingly, another area where a majority (70%) of companies say they have fallen behind is in the quality of the management team in the divested business.

In selecting management teams, sellers should consider their:

  • Deep familiarity and track record with the business and its competitive positioning
  • Key customer relationships
  • Vested interests, and the potential for reinvigoration of these leaders by the potential sale (i.e., a unit that has been underinvested or micromanaged, may offer new “freedom” to the management team)
  • Ability to develop the go-forward strategy and passionately and credibly present it, with a clear linkage to the forecast
  • Willingness to go with the business upon sale and be locked up for an appropriate time period

Once a buyer is identified, the management team’s allegiances will naturally begin to shift toward the buyer. Companies should have governance in place to ensure those aligned to the divested business are not acting in a manner inappropriate to the seller.


Splitting for strength

When a medical device company decided to divest a business, its first step was to get a clear picture of what the workforce would look like post-separation. The company then used analytics to complete operational improvements: synthesizing financial reporting, benchmarks and operational information to increase EBITDA. In doing so, the company was able to capture a sale price 18% above expectations for the business.
If you are one of the 78% of companies prioritizing sale price over speed of execution, what steps should you take now to achieve divestment success?
Focus on critical value drivers in divestment planning and execution
Companies are more likely to exceed expectations on divestment performance when they spend time up-front to properly capitalize and operationalize the business for potential buyers. Sellers can improve negotiations through greater transparency and using analytics to avoid learning something from the buyer about their business that they should already know. In addition to preparing a strong value story, creating an effective stakeholder communication plan and focusing on a quality management team can improve divestment speed and value.
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