Divestitures and Separations

What we do

Divestiture and separation decisions can be a make-or-break bet for most corporate executives and boards. While they provide an opportunity to create value through an increased focus on core businesses and to reshape a company’s message to investors, employees and other interested stakeholders, both can be complex, costly and time consuming. We help companies carefully consider, plan and execute divestitures and separations to unlock value.

Divestitures

Divestitures are a major source of M&A activity: they have accounted for two-thirds of M&A deal value over the past 5 years. Well-timed and well-executed divestitures have clear benefits that investors often reward. In fact, Bain research demonstrates that:

  • Companies that selectively prune their portfolio – those with divestitures that amount to 10% of less of their deals – generate more than double the annual excess returns of others.
  • 50-60% of divesting companies’ stocks outperform their index up to 2 years after announcement.
  • Proactive divestitures generate significantly more shareholder return than reactive ones.

Unfortunately, our research and experience also indicate that most companies do not approach divestitures proactively or with the same rigor as they do for acquisitions. Our divestiture consulting experts ensure that’s not the case for our clients.

Separations

Separations can be a powerful way to unlock value by refocusing on a core business. However, they are often complex, time consuming and expensive. Our research also indicates that the results from separations can be less predictable than those from other types of M&A activities.

From 2001 to 2010, the top one-third of separations generated significant value, with the combined market cap of the new businesses after separation exceeding the pre-spin value by more than 50%. But in the bottom third of the cases, the combined market cap of the new companies 18 months after separation was 40% less than the pre-spin value.

Our research indicates that separations are therefore "high beta" events, requiring CEOs and boards to thoroughly understand the most important factors that contribute to success—or lack thereof—when considering such an option for their companies. Our separation consulting experts help companies succeed by applying our deep and practical understanding to help companies increase their odds of success by taking a thorough and rigorous approach to separation execution.

Our approach

Successful companies not only invest, they divest and sometimes separate, too. When they think about how best to manage their portfolios, they think simultaneously about which businesses to grow and which to shed. Our approach to divestitures and separations ensures executives and management teams thoroughly understand the key contributors to success:

Divestitures

Our experience across hundreds of divestiture cases and our research on how the best companies divest has taught us that to maximize a business's exit value, divestiture programs must be carefully orchestrated. Our approach to divestiture typically includes three phases:

  • Corporate strategy: The best divestitures start with a well-defined corporate strategy. We help companies articulate performance objectives, strategic direction and goals, determine portfolio priorities based on market conditions, assess cost considerations and evaluate divestiture options.
  • Divestiture preparation: To maximize value, divestitures require a thorough preparation program. Our experts help build the exit story, create the road map to full potential, design the separation in detail, set financial targets and harvest low-hanging fruit to produce credible results.
  • Divestiture execution: No matter the type of divestiture, careful execution relies upon standard principles. Companies need to value a business and set walk-away price, screen buyers based on the business's value to them and conduct reverse due diligence and devise a buyer approach.

Separations

Our approach is framed by our research and extensive experience supporting major separations. We focus on five elements that help companies and executives dramatically improve their odds of generating full value from these time-consuming and expensive endeavors:

  1. A clear and compelling rationale for separating. It seems obvious, but this may not garner the objective and rigorous consideration it deserves.
  2. A separation process that sets both companies up for success. A successful split goes beyond the purely transactional and operational elements of separating businesses. It must ensure that both companies will be competitive in their future markets.
  3. Established plans to offset dis-synergies over an appropriate period of time. Winning companies create a cost-mitigation plan for offsetting the incremental costs that result from a duplication of activities and personnel or the loss of scale economies.
  4. A continued focus on current business priorities. Separations can be lengthy endeavors that create a diversion from normal operations. There must be a carefully structured process that enables the vast majority of the company to remain focused on day-to-day execution.
  5. Actively managed leadership talent through and after the separation. Some companies fail to anticipate a basic need: the leadership depth required to pull off a successful separation – in both companies.

Our divestitures and separations experience is supplemented by Bain’s unique approach to change management, called Results Delivery®. Results Delivery ensures that companies have the proper support to predict, measure and manage risk in order to reap full benefits and value.