Divestment Strategies

Divestment: Selling off full or part of the business

Reasons for divestment:
▪ Objectives not being achieved (e.g., losses)
▪ Concentrate on core activities (undo diversification)
▪ Need funds to finance more profitable option (liquidity)

Exit barriers
▪ Factors that causes difficulties in exiting, such as:
▪ Lack of buyer / right offer price
▪ Low disposal value of assets
▪ Heavy redundancy payments
▪ Legal issues / contracts

Methods of divestment:
▪ Sell as a running business to another entity (mostly competitor)
▪ Sell as a running entity to management/employee group
▪ Sell as a running entity to existing shareholders / partners
▪ Liquidation: wind up the business by selling all assets and paying liabilities

Management / Employee Buyouts

▪ Business is sold to the management or employee group as a running entity
▪ Reasons (and advantages):
▪ Expertise is retained internally
▪ Continuity of business (no management hiccups)
▪ Support available from ex-corporate / parent

Turnaround Strategies
▪ ‘Turnaround’ strategies are used when the business is continuously making major losses and if things
are not controlled immediately, business might close.
▪ Turn around strategies are implemented quickly as time and speed is important

Steps for turnaround strategies:

▪ Change senior management (preferable those with turnaround expertise)
▪ Focus on short term cost reductions and revenue boost
▪ Focus on root cause of the problems and fix it urgently
▪ Gain support of key stake holders, such as key staff, financers, banks, customers
▪ Financial restructuring, e.g., reschedule loan repayment arrangements and markup rates
▪ Try to maximize synergies with other sister companies within the group
▪ Close down unprofitable branches / produces.