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Serial and parallel divestitures
Driving success in complex M&A transactions
Market conditions are at a tipping point for sellers. Corporate cash reserves remain at all-time highs while un-invested private equity capital and increasing transaction multiples have converged to create a favorable climate for those companies looking to shed underperforming or non-core assets. Divestiture activity specifically is at record levels. Unique to this current wave of divestitures is the number of companies executing multiple divestitures in rapid succession (serial) or at the same time (parallel).
Five ways to master serial divestitures
In addition to Mergers & Acquisitions (M&A) discipline, the characteristics that consistently emerge as key success factors in serial/parallel programs tend to center around:
- Sequencing and accelerating deals
- Restructuring and value capture
- Establishing a scalable operating model
- Developing and retaining talent
- Building a repeatable play
Each of these elements contributes to an approach distinct from traditional divestitures. This methodology helps balance the risks and demands of a multi-year, multi-faceted endeavor with the incredible value creation opportunity often presented by large, transformational change.
Sequencing and accelerating deals
The sequencing and timing of transactions
To that end, the deal planning team and the divestiture execution team need to have an open channel for two-way communications, visibility into planned deal flow, and a way to communicate specific business complexities that may influence close timing.
For the divestiture planning teams, beyond enabling identification and execution of long-lead activities for transacting parties, the ability to do early planning helps the Separation Management Office (SMO) influence sequencing and timing based on the following five considerations:
- Maximizing deal value
- Sequencing by the size of the deal
- Preference for pilot transitions
- Level of buyer sophistication
Restructuring and value capture
As the business changes with multiple transactions, residual operations should also be adjusted to best support the remaining business—while maintaining flexibility for future transactions. Planning the structure of RemainCo (areas of the business that are still controlled by the seller post-divestiture) is perhaps the most critical part of a divestiture program, the serial component can add the unique challenge of having to continually adjust RemainCo to support the business over multiple deals (and years) in an evolving landscape. Several components often make value capture in serial/parallel environments challenging including accounting for shared/split resources and the timing of stranded cost elimination.
Completing a detailed stranded cost analysis early in the divestiture strategy and planning process enables you to capture those costs as efficiently as possible.
Establishing a scalable operating model
A serial or parallel divestiture environment can offer sellers opportunities to scale their program based on the number of simultaneous transactions as well as the future state roadmap of transactions. Scaling across transactions can meaningfully reduce separation costs and increase speed to close. Common areas ripe for scaling across transactions are in the areas of Separation Program Management, Transition Service Agreements (TSAs), Contract Separation, Stranded Costs, and Functional Separation (e.g., Finance, IT, HR & Communications, Supply Chain, Risk, Sales & Marketing). TSAs are especially relevant when assessing scale efficiencies in a serial/parallel divestiture program.
Developing and retaining talent
Planning and executing a single divestiture can pull top performers out of their “day job” for three to six months. Similarly, serial/parallel divestitures draw from this same deep pool of top performers, but the program needs are longer-term. As such, the organization should adopt a long-term view of talent development and management within the program. Priorities should include formal talent identification and development protocols, growth and rotation opportunities, and robust succession planning for the life of the program. With today’s mobile workforce, investing in talent management is critical to the long-term health of a serial/parallel program as unplanned attrition can potentially halt transactions or erode value capture.
Building a repeatable play
In an environment of rapid and repeated deal activity it is critical to develop a solid and repeatable “play”. Similar to becoming a highly efficient producer of goods, standard processes, tools and activities allow sellers to move resources around interchangeably, accelerate subsequent transactions, and ultimately reduce costs and improve outcomes. For companies contemplating a serial or parallel divestiture program a pragmatic approach to building repeatability is recommended—build the foundation, develop excellence and scale, and then increase speed.
Building the foundation should start with the end in mind. In this setting, the end refers to an efficient program able to deliver a flawless day one every time. Developing (or refining) a playbook, building standard tools and accelerators, and creating a centralized infrastructure where standards can be stored and accessed are all foundational elements for repeatability.
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Divestitures are complex endeavors, and adding a serial and/or parallel twist tends to only enhance those challenges. Being laser focused on addressing the unique scale, resourcing, and speed challenges is key to achieving growth and value capture objectives.
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