Assessing Your Company for a Divestiture
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About the play
This play is designed to assess your company if anything needs to be divested.
Preparation
Oftentimes, a business unit in an organization is not performing optimally. But it’s either the leaders are not aware of the fact, or they refuse to acknowledge it because it can be recognized as a failure.
However, early detection is extremely beneficial. Not only does it increase your time to prepare for the sale, but it also helps you to maximize the value of your business.
Run this play at least once a year and quickly assess the business units in your organization with three main criteria. You need all boxes checked before you can go ahead and plan for your divestiture.
People
CEO, Corp Dev, CFO, HR
Difficulty
Medium
Materials
Time
Running the Play:
Set Up a Meeting
Bring in key people together such as HR, CFO, CEO, Corp Dev, or even Board Members.
Identify the Long-Term Goals of the Company
There are times when a non-core business is a part of the long-term strategy of the organization. Your goal is to identify the non-core business which is not aligned with the long-term vision of the company.
Assess Underperforming Business Units
This is where your CFO comes in. After identifying the non-core business units, assess their profitability. Is the business underperforming compared to its potential? You can compare the actual performance to the market opportunity. This is how you will be able to determine if your business is running optimally.
Determine if the business is severable
Lastly, and probably most importantly, you need to determine if the business unit is severable. Is it possible for this business unit to stand alone on its own, or is it too reliant on your core business?
You need a yes to all the questions before you should consider divesting a business unit.
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