Diversifications often don’t live up to expectations, despite their tremendous potential to create value. This article discusses how companies can increase their odds of success and shift their portfolios into higher gear.
The Right Time
When executives realize that a particular asset is no longer supporting strategic objectives, it’s the best time to think about selling it. The executives who are waiting in anticipation are at risk of a slowing down of performance and even lower prices for purchases.
Transparency is key when it comes to communicating with employees about the intention and the implications of a sale. It is essential to communicate why the decision was made and make sure that employees know that their careers will not be affected. It is also crucial to inform the top customers within 48 hours of the announcement, and to create a dedicated procedure for dealing with issues that arise after closing.
A well-timed sale enables companies to reallocate their resources and invest in strategic core areas. For example, Finnish oil company Neste changed its name to reflect a focus on renewable energy after it sold its gas and oil businesses in 2015 and investing the proceeds. The company was capable of doubling its share returns in only five years.
The top divestors review their portfolios for potential candidates regularly and have teams dedicated to this work. These teams typically include members with specific expertise in areas such as the separation of accounting system and the implementation of service-level agreements for the remaining business and divested. Additionally, they conduct rigorous analysis of the value that is created by any entanglements between the business that is being sold and the remaining portfolio.