Divestiture and separation decisions can be a make-or-break bet for most corporate executives and boards. While they provide an opportunity to create value through an increased focus on core businesses and to reshape a company’s message to investors, employees and other interested stakeholders, both can be complex, costly and time consuming. We help companies carefully consider, plan and execute divestitures and separations to unlock value.
Divestitures are a major source of M&A activity: they have accounted for two-thirds of M&A deal value over the past 5 years. Well-timed and well-executed divestitures have clear benefits that investors often reward. In fact, Bain research demonstrates that:
- Companies that selectively prune their portfolio – those with divestitures that amount to 10% of less of their deals – generate more than double the annual excess returns of others.
- 50-60% of divesting companies’ stocks outperform their index up to 2 years after announcement.
- Proactive divestitures generate significantly more shareholder return than reactive ones.
Unfortunately, our research and experience also indicate that most companies do not approach divestitures proactively or with the same rigor as they do for acquisitions. Our divestiture consulting experts ensure that’s not the case for our clients.
Separations can be a powerful way to unlock value by refocusing on a core business. However, they are often complex, time consuming and expensive. Our research also indicates that the results from separations can be less predictable than those from other types of M&A activities.
From 2001 to 2010, the top one-third of separations generated significant value, with the combined market cap of the new businesses after separation exceeding the pre-spin value by more than 50%. But in the bottom third of the cases, the combined market cap of the new companies 18 months after separation was 40% less than the pre-spin value.
Our research indicates that separations are therefore "high beta" events, requiring CEOs and boards to thoroughly understand the most important factors that contribute to success—or lack thereof—when considering such an option for their companies. Our separation consulting experts help companies succeed by applying our deep and practical understanding to help companies increase their odds of success by taking a thorough and rigorous approach to separation execution.