Doing divestitures that deliver value

Successful companies actively manage their portfolios of businesses, identifying those with the greatest growth prospects and divesting others that no longer fit their overall strategy. But divestitures are easier in theory than practice, and many companies don’t achieve the anticipated value from the transaction.

Nonetheless, divestitures—if done right—can help companies transform faster and emerge stronger. Our analysis of US divestitures from 1998 to 2017 found that many sellers experienced higher growth in earnings before interest, taxes, depreciation and amortization (EBITDA) in the years following the divestiture. Such results varied over the years, but the share of divestitures associated with increased EBITDA growth has consistently risen, reaching 60% in 2017 as companies shed non-core and underperforming assets that dragged down valuation and used proceeds from those sales to fuel growth.

Divestitures create value for companies in times of economic uncertainty as well, our analysis found. Those that divested in previous recessions were able to focus on their core businesses and boost cash flow following the sales, especially companies that were under earnings or cash flow pressure. In one instance, those with less than 10% EBITDA growth, including those with negative growth, two years before the divestiture saw relative returns of 8% in the year after the sale.

Our research shows that, overall, divestitures that saw higher returns, share three key factors.

Transaction size

The bigger the transaction, the more likely the seller will benefit. For sellers who saw accelerated EBITDA post-divestiture, the median transaction price was nearly double the price for sellers that didn’t see faster EBITDA growth. We found that a seller parting with a larger piece of its company stands to generate greater proceeds to reinvest in core businesses, bring more scale to corporate development opportunities, and free up time, capital and other resources to invest in areas where the business is better positioned to grow.

Cross-sector transactions

Companies that sell assets to acquirers in other industries tend to perform better. After a cross-sector divestiture, 58% of sellers saw higher EBITDA growth, our analysis found, compared with only 42% of those that sold within the same industry. Companies in many industries in recent years have increasingly considered cross-sector acquisitions. The strategic rationale for these deals includes limited growth opportunities within their own industries and the need for new technology or other assets. That has expanded the pool of buyers for divestitures. Sellers should be mindful of this larger universe so they can be in a stronger position to secure higher premiums and negotiate better terms.

Buyer location

US companies can realize growth after a divestiture regardless of the acquirer’s nation of origin. Cross-border deals can present various regulatory, logistical and other challenges, but our analysis found that roughly the same percentage of companies that divested to non-US buyers saw increased EBITDA afterward as those that divested to US buyers. In both cases, more than 60% saw growth. This means companies have options beyond domestic buyers and can still generate positive outcomes.

How to capture value and transform your company through a divestiture

While many companies look to acquisitions as a path for transformation, divestitures can be instrumental in an organization’s evolution or reinvention. If you proactively consider a divestiture — as opposed to reacting in a time of distress — you’ll have a better chance of seeing positive returns, as you’ll be better able to sell on your own terms. And those returns can help accelerate change through investments in critical areas, including new technology and workforce training.

But preparation is crucial. To minimize risk of losing value in a divestiture and realize the full potential for transformation, understand and address these important areas before committing to a transaction.

Be proactive and agile in your divestitures strategy

Companies should proactively review their portfolio of businesses to better understand their capabilities and interdependencies. To capture the greatest value, you need to clearly define the perimeter or assets for sale and make sure they’re packaged correctly for the market. But while you may have an initial view of what you want to sell, remain flexible in case a buyer doesn’t want certain assets that you want to divest or is interested in assets you didn’t originally contemplate selling.


Position your assets. Divestitures often, but not always, involve underperforming businesses. You can improve an asset’s position by presenting various scenarios under which you believe the asset might have performed or could perform better. Different conditions — such as economic cycles, industry shifts or customer behaviors — could produce different results. This should be done early in the process to take advantage of your intimate knowledge of the business.

Think through multiple scenarios. To attract an optimal buyer, you need to plan how you will address buyers’ questions under different scenarios. Anticipating what buyers will want to know will help move the divestiture forward while also enhancing the value of the deal. Take, for instance, divestitures that cross industry lines. Buyers from the same industry as the seller likely will have different needs than those from a different sector. Same goes for private equity buyers, who may have different operational needs than a corporate buyer. All this requires preparing for multiple scenarios if you want to attract more buyers and lock in a sale.

Separate key functions early. A divestiture’s value can hinge on the time it takes to close the deal, especially during the separation phase when all parties need to address how back-office functions—from finance to human resources to IT—will separate from the seller. If the process drags on, it’s likely to diminish the deal’s value. Companies can expedite the separation phase by starting early, even before a buyer shows interest. By segmenting key areas of the business in a way that doesn’t impact operations if a sale doesn’t happen, you will be well positioned to reduce the time between deal signing and separation of assets.

Bottom line

Leveraging a transaction for transformation isn’t easy, and sellers who fail to adequately prepare before a divestiture face even longer odds of realizing value. Success depends on being a prepared seller — not only for a particular deal but for strategic divestitures as a whole.

  • With strategy, position your assets, think through multiple scenarios and begin to assess which key functions need to be separated early.
  • With execution, don’t leave diligence to buyers, assess financial implications and quantify tax attributes to simplify negotiations and establish value up front.
  • With operations, set up your remaining company for growth, negotiate a transitional service agreement and make the most of your people.

Positive returns are possible for companies that look across their portfolios of businesses and carefully assess how and where a divestiture can deliver value. By acting instead of reacting, a divesting company can chart a clearer course for transformation.

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Michael  Niland

Michael Niland

US Divestitures Services Leader, PwC US

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