2024 Global Corporate Divestiture Survey has been saved
Analysis
2024 Global Corporate Divestiture Survey
5 bold steps to becoming ‘divestiture-ready’
The potential value of a divestiture goes beyond its transaction price. Our latest Global Corporate Divestiture Survey shows that organizations who approach divestiture planning in earnest can lower their separation cost and effort, increase transaction value, and realize growth and optimization opportunities for the divesting organization. Learn about five steps to consider in your divestiture strategy.
It's time to rethink the role of corporate divestitures
Is divestiture part of M&A? An exception? An adjacency? The common name for this sphere of activity implies that addition, not subtraction, is the name of the game. But without leaning too heavily into metaphors about the cyclical nature of life and business, it’s clear that shedding components of an organization can be as important a strategic tool as acquiring new ones.
In the long run, corporate divestiture can drive growth. It fosters gain, not loss. But to do so, it must satisfy the same criteria by which organizations judge acquisitions: It must align with enterprise strategy, satisfy projected metrics, and leave an organization stronger than it was.
In Deloitte’s sixth biennial Global Corporate Divestiture Survey of mergers and acquisitions (M&A) and restructuring leaders, we explore not only the latest trends in divestiture, but also its changing role in corporate strategy. A wholly realized “M&A” approach is really what we might call an “M&A&D” approach. Divestiture is a critical instrument in the corporate growth toolbox, and the organizations that remain “divestiture-ready” in their outlooks can be better prepared to benefit from it than organizations that hold it at arm’s length as a necessary evil reserved for times of crisis.
2024 Global Divestiture Survey
5 steps to proactive divestiture planning
When corporate divestiture outcomes match or exceed expectations, it’s no accident. Preparation makes a difference, not only transaction by transaction but as an ongoing aspect of the company’s transaction-readiness. The next logical question is: What preparation? Our research suggests five divestiture strategy focus areas where practice and sustained “muscle building” can make a difference.
During the pandemic-era spike in corporate divestiture activity, sellers that were already frequently evaluating their product portfolios and knew what noncore assets could be good divestiture candidates saw higher-than-expected value more often than those that had not made such assessments. It pays to assess your portfolio before a looming transaction impels you to do so. And that lesson appears to be sticking: In 2024, 60% of our divestiture survey respondents were strategically evaluating individual portfolio businesses for divestiture potential at least twice a year, compared to 45% in 2022.
What about transactions that disappoint? For 38% of respondents, the most significant reason they received less-than-expected value was the lack of an exit and separation-readiness assessment. So advance preparation applies to the individual transaction as well as ongoing portfolio awareness.
It takes many internal stakeholders to bring a transaction across the finish line: executive and business leadership, corporate strategy, business development, and separation management all need to work toward a common goal as the corporate divestiture planning process unfolds. Too often, the individuals who support these stakeholder groups hand tasks off from silo to silo, an inefficiency that can erode transaction value. This siloed approach may even mask potential sources of deal erosion. Aligning internal players is a step that should take place as early as possible.
More than half of survey respondents believe their stakeholders are well-aligned today, but about a third did say stakeholder alignment was one reason their most recent transactions took longer than expected to complete. Looking deeper into survey data, we noticed clusters of particularly “integrated sellers” who combine strong internal collaboration, frequent portfolio evaluation, openness to strategic alternatives, and confidence in transaction execution.
Explore the potential benefits of stakeholder alignment and how to achieve it
A corporate divestiture carries costs an organization should anticipate. Stakeholders inside and outside the company may need to commit significant resources to make it work. One way to measure the one-time cost of a transaction is to compare separation costs with its annual revenue. Most of our respondents (88%) said they spend at least 4% of the revenue of the business to be divested to execute their divestitures, and more than half spent 6% of revenue. More complex and cross-border divestitures may cost as much as 20% to 25% of revenue.
Where do separation costs arise? We believe transaction costs, operational separation costs, and taxes make up most of the bill. These inputs are volatile—the number of respondents who found their cost estimates “fairly accurate” dropped by more than half from 2022 to 2023. In our divestiture survey, the performance of the to-be-divested business, the time it takes to separate the business to be divested, and the time required for internal stakeholder alignment are among internal factors that contributed to that difficulty in transaction cost forecasting. Our respondents also cited the time to negotiate transaction agreements, to accommodate buyer diligence, and to arrange buyer financing as additional drivers of separation costs. Note that time is the common thread—a factor that continual preparedness can help mitigate.
In our 2024 M&A Trends Survey, virtually all respondents—99 percent—indicated that their organizations have begun moving beyond traditional software solutions and have started to incorporate Generative AI or advanced data analytics into their M&A processes. Based on the corporate divestiture survey, sellers aren’t far behind in their own technology adoption.
Nearly all (98%) sellers believe their companies to be at least minimally technologically savvy and mature in planning and executing divestitures and say they use technology augmentation beyond standard tools or spreadsheets. Yet only a fraction (14%) indicate they are very savvy or mature, leveraging large data sets fluently with advanced statistics or Generative AI to improve divestiture outcomes. The view from C-suite respondents was more muted: Fewer than half believed their organizations were “tech-savvy” or “very tech-savvy,” compared to 63% of non–C-suite respondents. However, in terms of their current preparedness, a strong majority (86%) of overall respondents agree improving tech savviness and maturity helps improve divestiture outcomes.
Find out how tech can create divestiture value and how to increase “tech savviness”
You sell an asset; you receive proceeds. Is that the alpha and omega of corporate divestiture value? Only in the simplest terms. A sale might also leave the remaining organization more focused or efficient, which is another source of value. We believe that the divestiture-ready organization sees value creation from all sides—the buyer, the business to be divested, and itself.
Going to market with a business to be divested at the peak of its value can contribute to value. Failing to execute on value-creation opportunities can limit value. About one-third of divestiture survey respondents said shortcomings in this area had depressed the value of a deal. Having a compelling value story and track record for the divested business was the second-most-frequent priority respondents said they would address if they had a chance to redo recent transactions. A demonstrated business model or strategy, a record of performance in a geography—anything a seller can measure or articulate—may help define value to a potential buyer. Even yet-to-be-realized value can help enhance a transaction if forecasting is solid.
Read about four key strategies to create and demonstrate value in your target
The road ahead
When an organization takes corporate divestiture out of the “in case of emergency, break glass” category and normalizes its inclusion in strategy, planning, and dealmaking possibilities, there’s no guarantee that it will happen more often. But it may—and it may also contribute more reliably to long-term value creation by making each transaction easier to imagine, pursue, and execute.
In the end, the divestiture-ready organization is a growth-ready one, with a freshly sharpened tool at its disposal.
Let’s talk about what divestiture-ready means for your organization.
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Joel Schlachtenhaufen
Global Mergers & Acquisitions Leader | Consulting
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