In a divestiture, a 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 management 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.
In a spin-off, the parent company creates a new, independent company from an existing division or subsidiary. The existing shareholders receive shares in the new company on a pro rata basis and end up owning shares in two separate companies. The value of the separate companies is expected to be greater than the value of the original business prior to the spin-off.
There are several scenarios in which divesting may make sense. If getting “smaller” in the short term can improve your long-term growth prospects, then divestiture is a strategic option to consider. For example, you may own a technology or product line that is highly valued by the market but is no longer contributing to your core mission.
If you have already identified the buyer, a corporate divestiture can go quickly. However, most divestitures require at least 4 to 6 months, and some may require considerably more time.
Preparing for a divestiture is similar to getting ready for a merger or acquisition. The basic steps include:
Many things can kill a business deal in which the buyer and seller have distinctly different perspectives and goals for the transaction. Here are a few common deal killers for divestitures: