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:
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:
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.
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.
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:
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.
Global report PDF