It’s Time to Rethink the Role of Corporate Divestitures

When we think of mergers and acquisitions (M&A), the focus often lands on the idea of growth through addition—acquiring new assets, entering new markets, and building on existing capabilities. But there’s another, often overlooked aspect of M&A that can be just as critical to a company’s success: divestiture. While it may seem counterintuitive, shedding parts of a business can be just as valuable as acquiring new ones, and in many cases, it’s a necessary step in driving long-term growth and value creation.

Divestitures should not be seen as an exception or a last resort. Instead, they should be an integral part of a company’s overall strategy. Successful organizations understand that divestitures can provide a significant opportunity to streamline operations, focus on core competencies, and generate capital for reinvestment. In fact, many companies have realized that a balanced approach to M&A, which includes both acquisitions and divestitures, can better position them for sustainable growth.

The Strategic Value of Divestitures A well-executed corporate divestiture can drive growth by making an organization leaner, more focused, and more efficient. Just as with acquisitions, divestitures should align with the company's long-term strategy. They must be carefully evaluated to ensure they meet certain metrics and deliver value.

In Deloitte's 2024 Global Corporate Divestiture Survey, it was noted that companies that regularly evaluate their portfolios and proactively identify non-core assets for divestiture often achieve better-than-expected results. By taking a proactive approach to portfolio management, organizations can strategically plan divestitures that align with their business objectives and ensure they are always prepared for potential opportunities.

Key Steps to Proactive Divestiture Planning

Success in corporate divestiture doesn’t happen by accident. It requires thoughtful preparation and strategic planning.

Here are five steps companies can take to ensure their divestiture strategy is aligned with long-term growth goals:

1. Frequent Portfolio Reviews: Regularly evaluating your product and asset portfolio ensures you're ready to divest underperforming or non-core assets. Businesses that do this see higher returns on divestitures.
2. Internal Alignment: It’s crucial to align stakeholders—executives, corporate strategy teams, and business leaders—early in the divestiture process to avoid delays and inefficiencies.
3. Cost Management: Managing the separation costs of divestitures is a challenge. By preparing in advance and understanding potential cost drivers, companies can better manage expenses and prevent cost overruns.
4. Embrace Technology: Companies that integrate technology—such as AI and data analytics—into their divestiture processes can improve outcomes and reduce complexity. Yet many businesses still need to elevate their tech-savviness to fully realize these benefits.
5. Value Creation: Divesting a business isn’t just about receiving immediate proceeds. It’s also about creating long-term value by leaving the remaining organization more focused and efficient.

Embracing a Divestiture-Ready Culture Companies that are "divestiture-ready" understand that offloading non-core assets is as crucial to long-term growth as acquiring new ones. This readiness allows organizations to act decisively when opportunities arise, reducing the time, effort, and cost associated with transactions. By normalizing divestiture as a strategic tool rather than a reactionary measure, companies can better position themselves to unlock value from both sides of the M&A equation.

In conclusion, it’s time to rethink the role of divestitures in corporate strategy. Being divestiture-ready isn't just about cutting away what doesn't work; it's about aligning your organization for focused, long-term growth and making each transaction a stepping stone to future success.

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DISCLAIMER: THIS POST IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS, AND SHOULD NOT BE CONSTRUED AS, LEGAL, BUSINESS, FINANCIAL, OR TAX ADVICE OR COUNSEL OF ANY KIND.

Doug Mitchell, Partner

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An experienced business and real estate transactional attorney, Doug provides outside general counsel services to startup, growth stage, and mature businesses across various sectors, including food and beverage, hospitality, technology and software, real estate and construction, and agriculture. He regularly handles a wide range of legal issues, including entity formation, governance, debt and equity financing, business acquisitions, dissolutions, commercial contracts, and real estate (purchase and sale agreements, leases, easements, and license agreements). As a representative sample of the diverse industries in which Doug provides counsel, his clients include Blackbird Vineyards, Paragon Consulting Partners, and Libation Labs.

Prior to joining Scale, Doug was in private practice at a boutique Napa-based law firm,? where he advised numerous businesses, including those with roots in the wine industry, on a range of corporate and commercial matters. He began his legal practice as a litigator, an experience that taught him the value of finding common ground in business transactions and relationships. ? ? ?

Doug prides himself on providing practical and efficient solutions in support of his clients’ diverse business goals. ?