Divestitures: Boosting Value with a Growth Focus | Deloitte US has been saved
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By: Nik Chickermane and Karima Porter
In the face of disruption and uncertainty, companies have brought renewed attention to divestitures as a source of value creation. Yet all too often, sellers in divestitures prioritize continuity at the expense of growth, fixating on transaction requirements and process over revenue initiatives.
There’s a better way to approach divestitures—a way focused not just on costs, but on the range of revenue-generating functions that keep the organization healthy and maintain a course for growth. In Deloitte’s 2020 Global Divestiture Survey, 60 percent of respondents said improved operating performance was one of the most important reasons they received higher than expected value from their most recent divestiture transaction.
In this article, we look at how a clear focus on a company’s go-to-market functions (e.g., sales, marketing, product, customer support) can boost performance during a transition and contribute to preservation, stabilization and growth as a business goes through the divestiture process.
Preserving a business’s post-divestiture revenue should always be a top priority. Failure to do so can harm the seller, undermine the purchase price through closing conditions attached to the deal, or even force a renegotiation of the transaction.
To preserve revenue, communications with customers and partners need to be open, honest and proactive. By their very nature, divestitures shift a business’s go-to-market strategy, and leadership needs to not only explain the changes but also articulate a growth story to customers and channel partners. To address this, we recommend developing a 360 customer and partner readiness plan to address the complexity of changes that will occur during and post-transaction. We see increased success when you can highlight how the change of ownership will improve the business’s standalone value and benefit customers. Assuring customers of continuity is essential to maintaining trust and talking to them early and often, even if not all answers are available, can make the difference between strong retention and increased churn.
Disentangling a business from its parent is bound to disrupt a business’s go-to-market and revenue-generating functions. Resources may be lost, reporting lines may need to be reorganized, and the remaining sales team may have a smaller product portfolio from which to meet its quota, often impacting incentives and compensation structures. Sales operations and customer support functions are also often entangled, meaning potential stranded costs from shared systems, field offices, or resources should be identified early and minimized swiftly.
Across all functions, focusing on a smooth transition as the divestiture process moves forward is essential. In fact, 43 percent of respondents in Deloitte’s 2020 Global Divestiture Survey said sensitivities with employee morale posed a challenge during a divestiture. We recommend Sales and HR leaders move quickly to make sure that retention bonuses and sales incentives are properly aligned with the changing circumstances. Comprehensive change management is essential to minimize attrition and maintain business continuity.
Divestitures present unique opportunities for growth—opportunities that should be front and center well before closing. The remaining organization can now re-focus their business, which may have been previously encumbered in a larger entity. Product strategies and roadmaps are now free of dependencies, Sales can re-imagine and redefine customer segments that suit their smaller set of products better, and the infrastructure supporting go-to-market functions can now be optimized.
Throughout a divestiture transaction, we believe that considering transformation opportunities early creates the highest long-term value. This includes simplifying the technology stack, re-envisioning priorities and strategy, and streamlining processes, all with a forward-looking intent to improve operations, efficiency, and enable growth. Beginning the transformation journey during the transaction offers sellers a chance to flexibly shift gears once a transaction closes.
The Sales and Marketing functions within any enterprise is where revenue is generated, and successful sellers are often those that proactively respond to the changes impacting their customers, partners, and employees. M&A divestitures can ignite growth, but their success hinges on the disciplined optimization of go to market and customer facing teams with an unwavering focus on value generation.
Nik is a principal in the Mergers & Acquisitions Consultative Services practice of Deloitte Consulting LLP. Nik has led 100+ transactions and has extensive experience in target identification, due diligence, integrations, divestitures, synergy capture, and transformation, resulting in $5B+ savings and $20B+ increase in market share. Nik also leads the Sales & Marketing in M&A practice, advising on growth synergy planning, go-to-market strategy, sales operations, marketing branding, digital transformation, and customer experience.