Common Reasons to Divest

The principle behind divestment is simple:  sell a division, subsidiary, product line, or other asset that is not contributing to your core products and services. That approach can enhance your growth strategy by keeping you focused on optimizing the performance of your overall business. In fact, as your company grows, divestment may become part of your regular strategic planning.

In a divestiture, the company sells a line of business in exchange for cash or other consideration. In some cases, the company may choose to sell the division to some of their managers rather than going to market. In a carve-out, the company creates a new company out of a subsidiary and sells or transfers shares to investors or perhaps to a management team.

Some common reasons to divest include:

  • The division is no longer aligned with the core business
  • Sustained lack of profitability, or margins continue to lag other parts of the business
  • Capital is needed to grow other parts of the business
  • Company is over-leveraged (too much debt)
  • A previous acquisition isn’t working out

 

It can be painful for an entrepreneur to sell part of their company in which they have invested so much time and energy. But in some cases, it may be a crucial step to reaching full operating potential. Contact us if you’d like to discuss your options, in confidentiality, with an experienced advisor.