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 / Autumn 2013 / Issue 72(originally published by Booz & Company)


The Secret to a Successful Divestiture

In practice, most sellers, facing the pressure of time, end up having to choose which capabilities to focus on. Your goal is to keep the process moving without sacrificing the quality of your decision making or jeopardizing the outcome.

There are certainly divestitures in which the buyer is known from the beginning, but it is not uncommon for a company to decide to divest something just because it no longer fits strategically, announce this plan publicly, and then search for a buyer. In these cases, major portions of a divestment plan must be executed before a buyer has been identified, and certainly before the transaction has taken place. This adds to the challenge.

There are also partial divestitures (such as that in the oil and gas company example in this story), in which only some assets of a given business or parts of an asset are sold. A partial divestiture is often more complicated from the standpoint of capabilities, because of the seller’s need to hold on to some people, processes, and technologies that it could let go of if it were selling an entire business or product line.

To make the process of divestiture more manageable, we recommend five steps. Each step gains its power from how it builds on previous steps, helping sellers during the critical period—usually lasting up to 18 months—when they are readying assets for sale. Note that these steps focus only on the analyses and business process changes that are relevant to managing the capabilities you are divesting. How to identify a buyer, manage a road show, negotiate price, and execute post-deal service agreements—all critical activities—are outside our focus here.

Step 1: Capability Scoping

In the first step, you set the overall strategy for the divestment—including the assets you want to sell, when you want to sell them, and to whom. This takes place through an exercise called “capability scoping,” in which you take stock of the most important capabilities associated with the assets you are putting on the block. Often what’s up for sale is not a stand-alone business unit but (as in our oil and gas example) a product, service, or asset that sits within that business unit. It likely draws on capabilities that are centralized within the company or that are used by other parts of the business unit (and therefore can’t be offered as part of the deal). This step usually precedes the identification of a buyer and should be done before any transaction-related activity, such as planning an auction.

During the oil company’s first capability-scoping exercise, its senior executives identified almost a dozen capabilities that needed to be bundled with the refinery and service stations it was selling. These capabilities—including logistics and scheduling at the refinery, and a way of managing the service stations’ customer data that was built into their distinctive software system—would inevitably end up in the buyer’s hands.

Some of the other capabilities that the oil and gas company initially planned to look at were capital project management, asset management, and activities that fell under the heading of health, safety, and environment.

Often, the seller realizes there isn’t time to address every capability on its list, and it must set some priorities. As the scoping exercise at the oil and gas company went on, the company focused on four capabilities that would matter significantly after the deal was completed: the pricing expertise and proprietary algorithms of its refineries, an advanced system for understanding its inventory positions, a unique approach to credit card processing, and brand development. These four capabilities worked together (along with others) to allow the enterprise to be a low-cost producer and attract price-conscious consumers, many of whom went out of their way to drive to one of the company’s gas stations. These four capabilities would also remain critical to the seller after the deal, since the seller planned to continue to operate other refineries and service stations.

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