September 8, 2016
With divestitures emerging as an increasingly attractive way to potentially optimize a business portfolio or even fend off an activist shareholder campaign, what can you do to ensure your separation goes smoothly? If you are looking to dispose of assets, there are 5 areas to keep in mind to help align buyers and sellers. Following these guidelines can accelerate transaction timelines and enhance value for both parties while offering more clarity around key transaction elements.
1. Get centered: Establish a Divestiture Management Office (DMO) – the place from which all communications, activity and resource coordination, and overall approach will emanate. It speeds response to issues and overall decision making, ensures consistency across workstreams and keeps things balanced and on track.
2. To Be or Not to be: Develop the Target Operating Model (TOM), which defines the “to be” state of the parent and carve-out business throughout the process. To create the TOM, all parties must focus on core infrastructure elements like how employees and processes will be impacted, which IT and data systems will be affected and how and when to separate physical assets and facilities. It’s the roadmap to getting where everyone wants to go.
3. TSAs: Transitional service agreements (TSAs) clearly define the services the seller will provide after the transaction closes to keep operations running until the carve-out business is fully integrated or standing on its own. From a faster close and smoother transition, to reductions in both cost and risk, TSAs benefit both buyers and sellers.
4. Build a financial model: For quicker alignment between seller and buyer, it’s critical to establish a strong Financial Model that takes into account not only GAAP and deal information, but also costs specific to these kinds of transactions. And, the seller gains a better understanding of stranded costs after the TSAs are finalized, as well as any other accounting implications associated with post-separation restructuring.
5. Be transparent: Having a plan in place that includes both change management and communication to key stakeholders is crucial. Getting the right messaging to both those who are part of the business being sold and those who remain behind, as well as vendors, suppliers and customers, can pave the way for a smoother transition.
These 5 components help sellers think like buyers, while still bringing their perspective to the table. Buyers will appreciate agile, informed and prepared sellers who have clearly considered the risks, as well as the value. The preparation and alignment around these factors will facilitate an easier, speedier and successful transaction.
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