Jim Wininger: Everybody Wins in Divestitures



Many companies hesitate to shed noncore assets. But divesting a business can sometimes be the best move a company can make. Jim Wininger, a partner with Bain's Mergers & Acquisitions practice, shares how a systematic and proactive approach to divesting helps companies outperform the market.

Read the Bain Brief: Everybody Wins in Divestitures

Read the transcript below.

JIM WININGER: Every company I've worked with has some businesses that just don't quite fit. Some of them are very good businesses, and others are quite challenged. But in all cases, they're not quite getting the management attention and investment that they need to really thrive.

However, when I ask executives why they don't sell these businesses, they often push back, and they offer different reasons. Some cases, they don't know how to replace the earnings. In others, they're afraid of the distraction that the carve-out may create for their base business. And yet in others, they just...they're convinced that that business is about to turn its corner, and they want to take advantage of that exciting future.

So we looked at this and said, Should companies be divesting more? And we looked at 2,100 companies over a 10-year period of time. And we were measuring performance by total shareholder return. And what we found was that companies who engaged in divestitures in a focused way outperformed companies who didn't sell anything during that period by 15% on that total shareholder return basis. That's a big deal.

And even more interesting, we found that when they combined the focused divesting with material and repeated M&A, they outperformed those inactive companies by 40%. So this confirms a lot of what we already know: that active portfolio management matters, and that focused companies outperform.

So if you're thinking about divesting, how do you do it well? We think there are four key steps. First, you have to understand which parts of your business portfolio are core and which are noncore. And then for those noncore businesses, the temptation is to rush right out and try to sell them. We don't think that's the right thing to do. The right thing to do first is to make them as attractive as possible. Develop plans, tell the story, make them as attractive a business as possible before engaging buyers.

Then, when you are running the selling process and the carve-out process, try to make the selling process pointed at buyers so they understand why they should be the owners of this business. And in the carve-out process, run as smooth a process as possible to try to minimize disruption on your base business. And finally, it's critical not to lose the catalytic event that the carve-out moment creates to reshape the remaining business, so that it has the right size, shape and direction to succeed in its more focused future.

Read the Bain Brief: Everybody Wins in Divestitures