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Strategy & Performance Roundtable: Key Practices for Successful Divestitures

By Jennifer Barbour, Valerie S. Hart, Zach Warrick

April 22, 2019

Last year saw a consistent acceleration in deal making and transactions across industries, with the number of M&A transactions placing 2018 in the running with 2017’s vibrant transaction track record.[1] 2019 shows a continuation of this trend, with an increased number of public-to-private carve-outs being announced as well. Components of this transaction landscape are corporate divestitures and carve-outs. These transactions often have different planning, execution, and change management requirements, in comparison to acquisitions or mergers of equals.

With this in mind, we gathered a group of strategy & performance experts to identify and highlight key expectations and practices necessary to drive successful divestitures.

Zach Warrick: What factors are driving divestitures in 2019?

Valerie Hart: Divestitures are being driven by organizations’ needs to focus on key, core business strategies. These strategies require investment in technology and talent, with a continued assessment of digital paths forward to impact the customer. This digitalization is an enormous investment, and organizations are rightly seeking to raise capital and shed non-core products or services in order to focus on their key strategies for the future.

An increasing number of divestitures are being indirectly defined by customer needs and desires. Consumerism is driving organizations’ strategies, which include both growing consolidation [to meet customer demands via platform of products and services] and divestitures [shedding non-strategic products and services]. Thinking through this lens, the customer’s voice should be increasingly a component of transaction strategy.

Often, divestitures are viewed as a method to merely cut out unprofitable business lines. The reality is divesting can be a strategic decision that is profitable for both the parent company as well as the divested unit. Organizations choose for a variety of reasons, including strategic or market based.

Zach Warrick: Managing talent and employee retention is a critical component of divestitures. How can organizations effectively manage the talent component of a divestiture?

We are definitely in a talent crunch across industries, and divestitures can create substantial attrition if not managed carefully [see also: the value of human equity for modern organizations].  It is imperative that organizations start by identifying business impacts and key talent.  Next, the transaction team and Human Resources need to collaborate to establish a talent retention roadmap and to help employees deal with the anxiety tied to all the unknowns of a divestiture.

Valerie Hart: A lot of times, divestitures are inappropriately viewed as a “rip it out and sell it off” sort of thing. That is not the way to view the transaction and communicate it to your employees. It amps up the anxiety.

Jennifer Barbour: To reduce anxiety and resistance, start planning and developing the divestiture roadmap early on in the transaction process, focusing on reducing risk and mapping impacts across the organization. For the divesting organization, this will mean determining the “who” within each impacted function [e.g., Human Resources, Finance, Legal, etc.] and bringing them onboard as active stakeholders in the transaction process. I have found that it sometimes takes more stakeholders, within the framework of appropriate confidentiality, than you would initially think are needed.

I encourage organizations to embrace transparency as much as possible, within the constraints of appropriate legal and organizational confidentiality. For example, structure appropriate change and communication mechanisms to share what can be shared across the organization as soon as possible. This is a key component of a successful, people-first divestiture process.  In the absence of information, people usually draw conclusions and make decisions on silent assumptions. Everyone progresses through change differently, and while individuals always have the choice to opt out of a divestiture, managing change in an intentional, considerate way, will increase the chances of retaining talent.

Valerie Hart: And always have a change management and communication “plan A” and “plan B”, driven by experienced change leaders prepared to deal with issues as they arise [e.g., rumors, information leaks, and deal cancellations].

People will worry about their careers and their corporate identities. These transactions really don’t have to be processes driven by fear, though. Successful divestitures are achieved by clear, frequent, and transparent communication. This includes articulating the business story and the overarching benefits of the divestiture.

Zach Warrick: How does change management play a part in successful divestitures?

Valerie Hart: Going back to the people and talent management component of divestitures, it is crucial to use employee change management leading practices to protect the organization from loss of key talent and headcount. There will be a strain on resources, as their functions are constrained by the transaction. Appropriately communicating the “what now, what next, and what’s in it for me” associated with good change management can go a long way.

In addition, we are also talking about an impact on customers. There’s a continuity of brand and services issue with divestitures. Change management should be applied to how organizations’ map and measure the customer impact of the transaction, too.

Divestitures can be very complex, with functions and services expanding, shrinking, growing, or carving out as part of the transaction. Leaders shouldn’t lose sight of the change management and communication efforts required to educate stakeholders on the process, communicate the clear “why” and compelling business story being told, and maintain transparency across the business. A lot of the time, it comes down to leaders thinking empathetically about their employees. At the end of the day, people don’t like change, but they can be more receptive if the “why” is shared transparently and empathetically.

Almost always, talent will be lost in the divestiture, as many employees can struggle with the uncertainty and ambiguity of the process. Change management can reenergize employees, depending upon how employees respond to change, the acquiring company, and the level of communicated opportunities. Thoughtful, intentional, and appropriate change management can help the divesting organization maintain a people-first mentality that will ultimately save them time, effort, and talent lost to the divestiture.

Zach Warrick: What are other critical skillsets required to make divestitures successful?

I think there is brand mindfulness to consider in these transactions as well. Think about the brand [as buyer or seller] before, during, and after the transaction. How will the transaction impact your customer’s experience and customer journey? If organizations are very methodical and focused, the brand transition can be made seamless.

Valerie Hart: Right – think about the elements needed to lock down the brand from a legal, reputational, and valuation perspective. It’s not for the faint of heart!

Jennifer Barbour: When managing these complex transactions, it is important to have that ability to dig in and facilitate cross-functional stakeholders, really challenging them to uncover insights and key questions early in the divestiture process. For those who are doing the on-the-ground, roll-up your sleeves execution, the kinds of insights and problems uncovered in this way can be solved much faster and more effectively. For example, if new HR processes are being developed as a component of the divestiture, it is necessary to get the right people in the room to get the job done. That way, the processes can be defined, refined, and implemented in the middle of the broader effort.

Identifying the divestiture team is critical to success – strategically and tactically.  In addition to the tactical delivery team, assignment of a senior leader to engage stakeholders and provide strategic leadership to the organization and team instills confidence that the divestiture is being managed and in alignment with the corporate strategy.  This senior leader is ideally deeply engaged in the divesting company’s overall strategy to mitigate risks and to ensure the successful transition of the brand and operations.

Valerie Hart: Adding to that, from a program management perspective, it is important to have someone managing the divestiture plan’s execution, including tactical efforts like managing TSA workshops across functions and interfacing with the transaction advisors. In fact, keep the transaction advisors constantly connected with the divestiture program. It is a market transaction, and changes in the market may affect how the transaction occurs across key functions.

Ultimately, you need dedicated people able to devote attention to the effort. The individuals running the day-to-day business should not be the only ones acting on the transaction. We see divestitures go most smoothly when there are external viewpoints and neutral third parties brought in to help define the transaction approach and execution.


[1] See: Dan Primack, “2017 Was A Record Year For Mergers & Acquisitions”, Axios, 1/3/18. See also: “Number of Merger & Acquisition Transactions in the United States I 2018, Deal Value”. Statista.