After owning, managing, and advising divestitures several times, we at TrueNxus have created a guide for your divestiture strategy. This guide will help you and your organization successfully plan for an asset sale, a spin-off, or a carve-out.
Coupled with using TrueNxus will allow you to translate divestiture strategy into execution successfully. This guide and TrueNxus, are right for you no matter your company's size, but especially if you are planning on executing a corporate divestiture.
Now, let's focus on divestiture strategy and precisely how you can plan for a divestiture to maximize the deal's value. In this guide, we will outline the below sections. Feel free to skip ahead.
- Divestiture meaning
- Review the importance of a divestiture strategy
- Outline the typical divestiture workstreams
- Provide an illustrative divestiture project plan
- Understand divestiture best practices
- Identify common divestiture strategy challenges and understand how to manage divestiture risks: TrueNxus
1. Divestiture meaning
What is a divestiture?
Divestiture is a term used to describe the sale of a company or assets. The three primary types of divestitures are carve-outs, spin-offs, and split-offs. Investopedia does a great job of giving an overview of the differences between the three types of divestitures. However, the topic of divestitures is rich with details that we will not cover in this article: from the financial and tax strategies and implications to the legal and operational intricacies of separating the sold entity. Divestitures are exceptionally complex, which is why there are investment bankers, accountants, lawyers, and management consultants focused explicitly on divestitures and restructuring. However, we will provide you with an overview as to why companies decide to sell, and the rewards and risks to undertaking such a strategy.
Understand the reasons for a divestiture
While companies may provide a multitude of reasons for conducting divestitures, their motivations are summed up into the following four objectives:
- Improve economics: by selling assets, or a business entirely the parent company can focus on core competencies
- Market mispricing: the value of the two entities separated and stand-alone are worth more than if they remain combined
- Access to capital: the two entities separated and stand-alone have greater access to capital markets than if they remain combined
- Survival: the company is on the path to, or has already undergone bankruptcy proceedings and needs access to capital to survive
Acknowledge divestiture rewards and risks
If you decide to undergo a divestiture, you should understand the rewards and risks as divestitures may be more or less risky when compared to other strategies. Below are the rewards and risks of deciding to do a separation.
- New focus on core competencies
- Higher valuation
- Greater access to capital markets
- Lower taxes
- High separation costs
- Need to stand up support functions that were previously shared
- Lack of cross-selling opportunities
- Higher than expected TSA costs and timeline
- Failure to live up to financial expectations
- Change in culture
- Loss of talent
2. Review the importance of a divestiture strategy
Divestitures are one of the most complicated endeavors an organization can undertake. Divestitures impact every aspect of the seller’s business: people, processes, technology, and third party agreements. As a result, it's critical that you plan out your divestiture strategy.
Every business is like a network, with connections spanning across internal stakeholders from product lines and support functions, to external entities such as clients, regulators, and third parties (i.e., advisors, bankers, consultants, lawyers). As a result, it requires a significant level of attention and organization.
Additionally, unlike the analysis undertaken to determine whether to divest, which is uncontrollable, the execution of divestitures is entirely controllable. It’s the only time when the organization can allocate resources and work toward attaining the strategic objectives. Project management is required to control the execution. However, while execution is the most controllable state of capturing the value of a sale, it is often the most overlooked and poorly managed. Such loss in value capture is unacceptable to shareholders and employees.
3. Outline the typical divestiture workstreams
As in any complex project, it’s important to group large buckets of work into workstreams. In the simplest of terms, workstreams are a way to categorize a set of work. Workstreams can be functional teams (i.e., Finance, Operations, Marketing), business units, product teams, or a standard set of deliverables.
Divestitures are exceptionally complex, and some aspects of a divestiture, specifically the operational separation, may want to be broken down into projects in themselves. Either way, when conducting an asset sale, spin-off or carve-out, a typical set of workstreams, from pre-deal to post-deal, are outlined below.
- Review portfolio
- Estimate and capture deal value
- Structure tax
- Define legal structure
- Outline regulatory implications
- Analyze and structure financials
- Separate operations
- Plan and execute communications
4. Provide an illustrative divestiture project plan
Having advised several deals, including some of the largest divestitures, companies vary across the board in terms of how much project management structure they undertake. We at TrueNxus have seen companies, with the help of external consultants, stand-up program offices that form at the very beginning of reviewing the portfolio and oversee the entire deal execution, all the way through post-Day 1 operational separation and the administration of transition service agreements. We have also seen companies piece-meal management of a divestiture strategy through execution, or even tasks outlined below. Then, we have also seen companies only begin to put a project management structure in place after signing, only to eventually find that the value estimated, cannot be captured because they waited too long to put a structure in place to oversee the deal.
We at TrueNxus advise putting a project management structure in place from the very beginning. Below is an illustrative example of a comprehensive divestiture project plan that outlines the tasks required to control value capture.
Note: The below project plan, workstreams, and tasks are not in any particular order. If you are interested in the execution order or duration of each body of work in the project plan, TrueNxus can help. Reach out to our sales team today.
- Conduct a review of the portfolio
- Define strategic options
- Develop a business case
- Define sale type (i.e., carve-out, spin-off, or split-off)
Estimate and capture deal value
- Identify a buyer pool
- Develop marketing strategy
- Draft confidential information memorandum (CIM)
- Create management presentation
- Strategize negotiation tactics
- Obtain fairness opinion
- Launch data room
- Conduct due diligence
- Evaluate letters of intent (LOI)
- Value separation costs
- Estimate transition service agreements (TSA) costs
- Track separation costs and transition service agreements
- Determine tax strategy
- Outline potential tax issues (i.e., timing of tax, impact on NOLs and tax credits, impact on tax basis)
- Establish a tax structure
- Define Day 1 legal entity structure
- Value legal entities
Define legal structure
- Outline regulatory/legislative implications
- Operationalize tax structure and legal entities
Outline regulatory implications
- Consult with work councils and unions
- Receive regulatory approval and business licenses
Analyze and structure financials
- Define Day 1 capital structure
- Develop carve-out, spin-off, or split-off financial statements
- Establish deal-basis financials
- Audit financials
- Define working capital mechanics
- Perform asset revaluation
- Settle working capital
- Build stand-alone cost model
- Define one-time costs
- Perform stranded cost analysis
- Stabalize business
- Define the operational scope of the transaction
- Establish current state operating model
- Create Day 1 operating model
- Develop end state operating model
- Identify operational interdependencies
- Scope and price transition service agreements (TSA)
- Define TSA governance
- Outline current state organizational structure
- Establish Day 1 organizational structure
- Prepare and execute separation plans
- Assess Day 1 readiness
- Execute Day 1 checklist
- Exit TSAs
Plan and execute communications
- Plan and distribute investor relations communications
- Conduct shareholder and executive communications
- Communicate change management
- Draft and agree to legislative communications
- Prepare and share employee communications
- Design and distribute customer communications
- Plan and send vendor communications
5. Understand divestiture best practices
There are wide-ranging project management best practices when planning and executing divestitures. However, below outlines, at the highest-level, TrueNxus’s view of project management best practices in divestitures based on the founder’s experience in managing several separations.
- Establish one single source of truth
- Initiate a governance model
- Define a project charter
- Create and maintain a project plan
- Monitor and report project status
Establish one single source of truth
Complex projects such as divestitures require collaboration with a large number of stakeholders, both colleagues and third parties. At TrueNxus, we’ve seen deals with 100+ stakeholders through the life of a deal. As you can imagine, managing such a project can become chaotic fast, especially with everyone using different tools and templates. As a result, it’s essential to select one method, preferably a software solution and not presentations and spreadsheets, to manage everything.
Initiate a governance model
Ensure accountability by identifying the deal lead, project manager(s), and workstream owners. Additionally, identify all responsible stakeholders that will be on the hook for doing the work. You may not be able to identify everyone at the beginning, and that’s ok. Throughout the life of the deal, the responsible parties may change. However, the leadership team should be identified at the beginning.
Define a project charter
Do this right away so that you can align all stakeholders at the very beginning. The charter outlines the following:
- Cadence: how often regularly scheduled project meetings will occur (daily, bi-weekly, weekly, semi-weekly, monthly, quarterly, etc.).
- Objectives: are specific, measurable, achievable, realistic, and timely project goals.
- Benefits: is the intended value and/or outcomes the project plans to achieve.
- Risks: are any uncertain events or conditions that, if they occur, would affect the project objectives.
Create and maintain a project plan
Don’t worry if you and your team don’t have full foresight into how the plan should look. The project plan becomes living and breathing and is, therefore, continually updated throughout the life of the divestiture.
Monitor and report project status
Establish a recurring meeting to monitor and report progress. If the deal is large enough, it may make sense to establishes several meetings, one with senior leadership and others as workstream breakouts. In these meetings, the entire project team comes together to review progress to-date, solution roadblocks, and understand the plan. Meetings such as these instill accountability amongst each project team member by creating transparency and ensuring the team is collaborating to move the needle forward.
6. Identify common divestiture strategy challenges and understand how to manage divestiture risks: TrueNxus
Divestitures historically has been resource-intensive and time-consuming. Divestitures from planning through execution can take multiple years, especially when you consider administering transition service agreements. Not to mention, there may be numerous starts and stops, especially before a deal signing, during the due diligence. Throughout the divestiture lifecycle, there can be a variety of challenges, but below are the top-of-mind pain points your organization should consider.
- Version-control mess
- No governance
- Limited to no resource capacity
- Disparate and remote teams with different and dated project plans
- Limited to no visibility into project status reports
Challenge: Version-control mess
When planning and executing a divestiture strategy, deliverables like project plans, timelines, and status reports are maintained and updated in presentations, documents, or spreadsheets that are often offline and across disparate team members. When it comes to providing status updates, project managers and team members need to consolidate the disparate information across constituents into a digestible view. In an environment like this, there is a version-control mess, and there is no real-time visibility of status for any stakeholder, including management.
With no single source of truth, strategic thinking becomes cumbersome because it’s difficult to see how projects are being executed against their original plans. This leads to a lack of transparency and accountability, which hurts productivity, efficiency, and organizations’ bottom lines.
TrueNxus’s solution: Leverage one source of truth
TrueNxus is your organization’s single source of truth to manage the entire divestiture. No more countless hours herding cats via conference calls and emails, across a multitude of presentations, documents, or spreadsheets. By having the entire divestitures managed on TrueNxus, everyone has access to the information they need when they want it. Additionally, everyone can view the project plan the way it makes sense to them, from a list to a timeline.
Challenge: No governance
Companies often do not establish a governance structure for a divestiture until the deal has been signed and it's time to separate the two entities. However, This not only leads to confusion but also creates lost opportunities when execution is required. By not identifying the right accountable resources early in the process, giving them a chance to provide their buy-in to the decision-making, they are frustrated once they are brought into the process. They are required to execute against goals that they were neither involved in creating nor agreed upon.
TrueNxus’s solution: Establish a governance model and align accountable and responsible parties by leveraging OKR and creating a charter
TrueNxus helps you instill accountability in divestitures by having you create a charter and identify the deal lead, project manager(s), workstream owners, and OKRs. Additionally, you can identify all responsible stakeholders that will be on the hook for doing the work. You may not be able to locate everyone at the beginning, and that’s ok. Furthermore, through the life of the deal, the responsible parties may change. However, the leadership team should be identified at the beginning.
Challenge: Limited to no resource capacity
One of the most challenging aspects of divestitures is identifying and freeing up the right resources. There are many people across the organization that are required to help plan and execute a divestiture. However, more often than not, the employees identified to help drive the execution forward are doing so as a side job. They typically are not freed from their primary responsibilities. Instead, it often feels as though they are working two jobs. Rather than focusing on their day job and help drive results from the deal, they are often bombarded by multiple stakeholders with conference calls and emails for status updates, yet in different formats.
TrueNxus’s solution: Free up resource capacity
Once the right resources are identified, they can easily be added to the project in TrueNxus and assigned to their work. They can also collaborate and communicate directly in the app, removing the distracting and time-consuming conference calls and emails. Additionally, with TrueNxus’s intelligent automation, reliant stakeholders will be notified of any changes, and status reports will be generated automatically, ensuring everyone has access to the same information whenever they want it.
Challenge: Disparate and remote teams with different and dated project plans
There are two types of organizations that plan and execute divestitures. The first, are organizations that reallocate internal resources and hire external consultants to run a centralized Project Management Office (PMO). The second is decentralized organizations, meaning they leave up to the workstreams, business units, or support functions to create and run their own siloed PMO.
While the first organization, one that creates a centralized PMO, is likely to be more successful and achieving the outlined goals and objectives for the deal, it is expensive and resource-rich. However, no matter the option pursued, the same challenge persists, time and time again - its a nightmare consolidating and managing project plans. Almost always, every workstream and stakeholder maintains their plan or to-do list, and it’s up to a group of individuals to reconcile the different project plans into one master project plan. To make things even more complicated, it’s a version control mess.
No matter the type of organization, there is always a group of employees where it ends up being their full-time job to maintain a master project plan, and it’s expensive. Each of these employees is making six figures, and more often than not, it is left to external consultants to maintain, which results in millions of dollars.
TrueNxus’s solution: Collaborate as one team and maintain the project plan continuously
TrueNxus is your single source of truth for any divestiture, from divestiture strategy, alll the way through execution, where every team member or project guest (i.e., lawyers, consultants) can have access to the information they need when they want it. With TrueNxus, you’ll have the master project plan always accessible. Additionally, each stakeholder will be able to visualize the data the way it makes sense to them - a list or timeline. Furthermore, everyone has their section called My Work, which allows them to see only their relevant work.
In the event work changes, the reliant stakeholders will be notified immediately for any number of reasons. Additionally, reports will be updated automatically.
Challenge: Limited to no visibility into project status reports
When it comes to providing status updates, project managers and team members need to consolidate information across a wide array of constituents into a digestible view. However, project teams are managing their work across a multitude of presentations, spreadsheets, and documents. At TrueNxus, we have seen in every deal, entire teams assembled simply to maintain status across the whole project, so management has a view into progress. Teams are assembled because management wants to keep a pulse on progress. However, bringing together a group of individuals simply to herd cats, and then reconcile and standardize the data from disparate teams is painfully time-consuming, tedious, and plain wasteful.
TrueNxus’s solution: Monitor and report project status automatically
TrueNxus has automated analytics allowing the project team and management to access reporting whenever they want it. No more herding cats, employing or contracting entire teams just to make sure status reports are generated. Leverage the newfound time and money to focus on thinking strategically and doing your day job.
It’s time organizations had a solution to help them manage their divestiture strategy and accomplish more with less. If you’re looking for a solution to manage carve-outs, spin-offs, or split-offs, TrueNxus can help. Reach out to our sales team today.