M&A Guide ??: Part 8 - Divestitures

?? Divestiture: Imagine you own a big toy store, Company X, that sells everything from stuffed animals ?? to bicycles ??. But you notice that the bicycle section isn't making much money, and it's taking up space and resources that could be used for more popular toys. So, you decide to sell the bicycle section to Company Y, which specializes in bikes and can do a better job selling them. This act of selling off a part of your business is what we call a divestiture.

?? Different Types of Divestitures:

1. Sell-Off: This is like selling your old bicycle to a neighbor. Company X sells a part of its business directly to Company Y for cash.
2. Spin-Off: Imagine giving your bicycle to your older child to start their own bike shop. Company X creates a new, independent company (Company Z) by separating off a section of its business. The shareholders of Company X get shares in this new Company Z.
3. Split-Up: This is like dividing your toy store into smaller stores and closing the original one. Company X splits into completely new companies, and it stops existing in its original form.
4. Carve-Out: You decide to open a small bike shop next to your toy store and sell shares to the public. Company X sells a part of its business as a new stock offering, but it still keeps a controlling stake in the new public entity.
5. Liquidation: This is the last resort, like having a big yard sale to sell all your bicycles because the store is closing down. Company X sells its assets piece by piece, often to pay off debts.

?? Strategic Rationale of Divestitures: Divestitures are strategic moves. They're like deciding to clear out parts of your home that you no longer use, to focus on redecorating the rooms you spend the most time in. Companies divest to:

• Focus on their main business (like selling more toys and fewer bikes).
• Raise cash quickly, perhaps to pay off debts or invest in new opportunities.
• Respond to pressure from investors who want the company to perform better.
• Comply with legal requirements, like antitrust laws that prevent companies from having too much control over a market.

?? How Divestitures Work: Using the toy store analogy, divestiture is like holding a big sale of your bicycle section. You would:

• Decide which part of your business doesn't fit your main goals.
• Find a buyer or create a new company for this section.
• Negotiate a sale or distribute shares to your current shareholders.
• Use the proceeds to focus on what your toy store does best.

?? Difference Between a Divestiture vs. Carve-Out: A divestiture is like selling your bicycle section outright to someone else. A carve-out is more like helping that section of your store become its own smaller store, where you still own most of the shares, but other people can buy a stake in it too. In a carve-out, you're still connected and have some control, but in a divestiture, you're letting go completely.

?Also check the previous series of posts!

Part 1: https://www.dhirubhai.net/posts/eduard-grigoryan_corporatetakeover-mergersandacquisitions-activity-7122612744767352833-o4UF?utm_source=share&utm_medium=member_desktop

Part 2: https://www.dhirubhai.net/posts/eduard-grigoryan_corporatetakeover-mergersandacquisitions-activity-7122834826457419776-JOK1?utm_source=share&utm_medium=member_desktop

Part 3: https://www.dhirubhai.net/posts/eduard-grigoryan_mergersandacquisitions-corporatelaw-share-activity-7123564081738829824-gbiV?utm_source=share&utm_medium=member_desktop

Part 4: https://www.dhirubhai.net/posts/eduard-grigoryan_mergersandacquisitions-law-legal-activity-7124288765665173504-07gm?utm_source=share&utm_medium=member_desktop

Part 5: https://www.dhirubhai.net/posts/eduard-grigoryan_corporatelaw-corporate-legal-activity-7124654918249897986-FGU7?utm_source=share&utm_medium=member_desktop

Part 6: https://www.dhirubhai.net/posts/eduard-grigoryan_reversemerger-corporatelaw-law-activity-7125137737627619329-iP4a?utm_source=share&utm_medium=member_desktop

Part 7: https://www.dhirubhai.net/posts/eduard-grigoryan_conglomeratemerger-corporatestrategy-diversification-activity-7125945384098549760-beXQ?utm_source=share&utm_medium=member_desktop

#Divestiture #CorporateStrategy #MergersAndAcquisitions #BusinessEvolution #StrategicPivot #FinancialStrategy #InvestmentBanking #CorporateFinance #BusinessTransformation #Leadership #Innovation #StrategyInAction #BusinessInsights #Share #Like #Comment