Divesting a non-core business is not an easy decision to make. It involves weighing the potential risks against the rewards that come with selling part of your company, along with navigating any legal and financial implications that may arise in the process. However, when done correctly, selling such assets can raise the cash needed for strategic investments or operations while providing additional value to business acquirers interested in growth opportunities outside their traditional industries or markets. The divestment of a non-core business can present a unique opportunity to not only raise cash but also enhance shareholder value, especially when that business has more value to another firm than your own.
Many companies run multiple businesses at once but focus their strategy exclusively on those that are most closely linked to their main business objectives. Here are some key points to consider when making the decision about whether it makes commercial sense to sell off a non-core asset:
Assess: Review your current financial situation and identify any potential risks associated with keeping the business within the company. Weigh up the gain that disposal could bring in terms of capital or other resources and compare this against their strategic value if they remain part of the group.
Evaluate all angles: Take into consideration your existing business portfolio, both core and peripheral businesses; what products or services make up each market segment; which customers rely on them most heavily; how each product line compares financially by region and/or sector; etc. Build out projections based on current trends so you know exactly where those numbers stand before moving forward or entering negotiations. Ultimately it will come down to weighing the risks and rewards before deciding if breaking up a larger entity makes financial sense.
Set realistic terms: Establish boundaries ahead of time, who might be a good acquirer and who might not, determine valuation expectations and timescales. Think about conditions relating to customer experience, business continuity, post-transaction support costs, technology transfers & integration processes etc.
Navigate pitfalls: Protect yourself and the process by making sure pertinent contracts work for both parties pre and post transaction, consider legal and tax implications, competition laws etc. Along with the anticipated time, resources and potential distractions of managing the sale and due diligence process.
Keep options open: Construct plans for both routes – selling as well as retaining – taking into consideration future profitability scenarios so you can decide confidently based on all options available.
Divesting a non-core or unprofitable portion of your business might seem like an obvious way to generate immediate returns, but without proper research and foresight there is always risk involved. The bottom line, if you are thinking of divesting, review your options thoroughly, talk to advisors who can guide and manage the transaction on your behalf and always allow enough time to make the transaction a success.
Divestable.com provide a full M&A service to the SME sector.
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