Measure the ability to undertake divestiture. Explore requirements for a successful divestment. Address any potential issues. Improve delivery of shareholder returns.
As a divestiture can be a significant undertaking, management needs to get an upfront assessment that it has the resources to accomplish it effectively before it jumps in. An organizational readiness assessment is a formal analysis and measurement of the seller’s ability to undertake such a major initiative.
This play goes through the steps required to do such an assessment. It gives the seller the knowledge and assurance that the proposed divestiture will be successful, should it go ahead.
This type of assessment also gives the seller the ability to address any potential issues before they become big problems. This saves both time and money, leading to a speedier transaction timeline and improved delivery of shareholder returns.
CEO, Deal manager, Commercial team
Meeting Agenda, Whiteboard, Strategy documents
Spend one day or more to prepare materials for a one hour play.
Agree with the team the way the target operates in relation to the parent.
Here are a list of questions that help determine what this relationship is:
Each one of these questions indicates a level of complexity in the way the target operates in relation to the parent which will guide the scope, the time and effort required.
Discuss and agree divestiture complexity as follows:
Gain an agreement on what is being sold and what best describes the target:
Discuss and agree complexity as follows:
Capacity is the degree to which the organization can bring supportive work processes, knowledge and experience, current knowledge, skills and abilities, and resources to manage the divestiture successfully.
Discuss the following topics and achieve an open and honest assessment on the organizational capacity.
Discuss and agree complexity one-by-one as follows:
Many organisations are quite adept in the acquisition process with skills and capabilities to match. However, when it comes to selling assets, an organisation could have no experience at all. Carving out a business can often be more complicated than acquiring one. Divestitures, just like acquisitions, is an experienced-driven skill set where preparation counts. Being a prepared seller means having the experience to identify the pitfalls before they happen, and steer the sale to a successful conclusion for the benefit of both staff and shareholders. If the seller has no prior experience, then external support is required where skills and staff availability is most lacking.
If the seller company is financially struggling in some way, this can trickle down to operational problems with over-stretched staff working with curtailed budgets. This brings into question the sellers’ ability and available funds to effectively carve out a business it wants to sell in a way that makes it a saleable asset. Moreover, the seller may not have the capacity to provide transitional service support to a potential buyer post-close. This opens up the seller to predatory type buyers who will only want to cherry-pick the assets they want for the lowest possible purchase price. In this circumstance, the seller may need to seek additional funding so it can sell the business for the premium it seeks.
Resources are people, equipment, place, money, or anything else that’s needed to run the deal. If for example, there are other divestitures, acquisitions or other initiatives taking up staff time and budgets, it highlights a lack of readiness. Additional external resources and investment may be required to effect the transaction.
There’s a common desire to execute the transaction as fast as possible. Speed of execution is a critical factor in transaction success. However, if the transaction speed is particularly aggressive, then the seller is at risk of making sub-optimal decisions that could have the catastrophic impact of plaguing the parent for years to come as well as diluting deal value. A more measured approach is to go slow and deliberate when making business-critical decisions and accelerate once decisions have been made.
Level of commitment
Like any significant initiative, a successful divestiture revolves around the people and their ability to commit to the divestiture. A strong level of commitment is needed early and needs to be sustained until the transaction completes, and the desired outcomes have been achieved.
Probably the most crucial role in a divestiture is that of a sponsor. A sponsor needs to set, clarify, and align expectations, objectives and milestones. This person also needs to be candid on the time and effort to perform this role. If the sponsor is exceptionally busy with minimal bandwidth, then any declaration of commitment may be of dubious value. The sponsor has to accept accountability and put time aside for town-hall sessions, meetings, reviews, and checkpoints. It also requires an intense emotional commitment to do what is necessary to help see the divestiture through.
While the sponsor addresses the emotional side of commitment, it’s the separation manager who turns the notion of commitment into a practical exercise. This means team members will need to be assigned the level of accountability, and authority commensurate with their role. Secondly, the separation manager will need to set up the governance structure to ensure commitment and accountability is built into the rhythm of work.
While there may be a committed sponsor and separation manager, the same may not be said of the staff involved. There’s a risk that the staff working in the business to be sold feeling alienated and may not believe they are not being treated fairly. If the staff think they will not benefit personally and only see a downside to the divestiture, then commitment to the work will be met with resistance. The proposed divestiture needs to be framed as an opportunity for staff and a good solution that benefits themselves and the business they work for.
With the participants in the room, confirm:
Prepare a document that summarizes organizational readiness; use this as input to divestiture strategy and planning, and as input to other divestiture plays.