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Refocusing on
core services...
It’s often true. In good times or bad, divesting non-core businesses is a textbook strategy for refocusing on core strengths and improving the balance sheet — particularly when those businesses are straining resources and draining value.
But at a time when credit markets are frozen, stock markets remain volatile, and sellers face fewer buyers and lower deal multiples, what's a responsible CFO to do? Stand up, step out – and take the initiative. The problem is, that’s easier said than done.
Turns out, that's precisely what a global technology leader did. The company knew it needed to be proactive if it was to divest successfully in a market environment growing increasingly hostile to sellers, seemingly by the week. But it was unclear about where to begin. And how to follow through.
For years the company had been growing rapidly through acquisition, adding new businesses at differing degrees of integration and expanding the ranks of its employees by the thousands. But as the company’s top-line revenues soared, its profitability continued to sputter. Faced with little choice, management decided to shake up the company's strategic agenda – and turned to PwC. “We need to get leaner,” they said, “And fast – so that we can refocus our people and operations on our core areas of expertise.”
"While the company knew which businesses it wanted to divest, it needed to put together a strategy that would play well in the acquisitions marketplace," said Gregg Nahass, a leading partner in PwC's transactions practice. "In this case, because the client got us involved early, we were able to support their management team in quite a few critical areas – from preparing for buyer due diligence and carve-out financials to infrastructure separation, transition services, and overall divestiture management."
The scope of the initiative was significant. PwC advised the company on its plan and provided various levels of assistance in the divestiture of 14 different product lines – product lines that represented approximately 40% of the company’s revenues. A central thrust of that effort was helping the client extract the financial information associated with each of the units up for sale and to recommend the separation of the businesses into those positioned to attract varying buyer interests.
"We were able to say, 'Look, this is what the buyers are going to need in each situation, and this is what the financiers are going to need', and then work to build all of our advice and guidance into the company's preparation process," said Bryan McLaughlin, another leading partner in the firm's transactions group. "It's not just about the mechanical tasks associated with compiling financial information. It's also about applying deep expertise and experience in making divestitures work and being disciplined, vigilant and relentless about how to best capture value, ideally, at every stage and process of each transaction."
PwC worked with the seller to help them think like the buyer. Financials were prepared by the client in such a way as to anticipate how each unit would be viewed by the marketplace. Together, the client and PwC tried to see that potential buyers wouldn't uncover any surprises during the due diligence process — surprises that could ultimately drive down sale proceeds and delay deal close. They assessed earnings trends and quality. They cleaned up working capital matters. And they identified not just risks related to financial information but opportunities as well.
Knowing precisely where to look for value is essential. According to Nahass, divestitures present three primary sources of value: sales proceeds, transition services, and remaining operations. Value can be captured or lost in each of these. Sale proceeds can be eroded by surprises, delays, or other factors. Planning for transition service levels and pricing can begin too late, placing the seller on the wrong side of the bargaining table. And the chance to eliminate stranded costs or reorganize remaining operations can be missed.
"Divestitures may not get the spotlight that mergers and acquisitions enjoy, but treating a divestiture like a poor cousin of a merger or acquisition is a sure way to destroy value," says Nahass. Smart sellers, however, can take steps to improve the odds. "Once the decision to sell is made," Nahass says, "it’s critical to ensure a fast-paced separation that makes early use of disciplined planning, a well-organized launch, and a tireless focus on the priority issues that drive value."
Timing is key. "The unfortunate truth," says McLaughlin, "is that U.S. companies are much less likely than their European competitors to bring all of their advisers — including their accountants — to the table at the start of a divestiture process. This is one client that did the right thing.”
It’s also one company that is now reaping the rewards. The in-house teams gained the technical accounting advice, tactical know-how, and skilled resources they needed to complete the carve-out process and return the company to its core competencies with speed and efficiency. Management expects to trim one-third of the company’s operations while preserving shareholder value and strengthening its competitive position.
And the numbers are on the way back up. Revenue growth is more than 14% higher compared to the prior year and recent gains in other key financial metrics are credited with bringing more than a few smiles back to the boardroom.
core services...
Back to its DNA: A global technology leader takes a savvy approach to divestment in tough times – and refocuses quickly on its core business
It’s often true. In good times or bad, divesting non-core businesses is a textbook strategy for refocusing on core strengths and improving the balance sheet — particularly when those businesses are straining resources and draining value.
But at a time when credit markets are frozen, stock markets remain volatile, and sellers face fewer buyers and lower deal multiples, what's a responsible CFO to do? Stand up, step out – and take the initiative. The problem is, that’s easier said than done.
Turns out, that's precisely what a global technology leader did. The company knew it needed to be proactive if it was to divest successfully in a market environment growing increasingly hostile to sellers, seemingly by the week. But it was unclear about where to begin. And how to follow through.
For years the company had been growing rapidly through acquisition, adding new businesses at differing degrees of integration and expanding the ranks of its employees by the thousands. But as the company’s top-line revenues soared, its profitability continued to sputter. Faced with little choice, management decided to shake up the company's strategic agenda – and turned to PwC. “We need to get leaner,” they said, “And fast – so that we can refocus our people and operations on our core areas of expertise.”
"While the company knew which businesses it wanted to divest, it needed to put together a strategy that would play well in the acquisitions marketplace," said Gregg Nahass, a leading partner in PwC's transactions practice. "In this case, because the client got us involved early, we were able to support their management team in quite a few critical areas – from preparing for buyer due diligence and carve-out financials to infrastructure separation, transition services, and overall divestiture management."
The scope of the initiative was significant. PwC advised the company on its plan and provided various levels of assistance in the divestiture of 14 different product lines – product lines that represented approximately 40% of the company’s revenues. A central thrust of that effort was helping the client extract the financial information associated with each of the units up for sale and to recommend the separation of the businesses into those positioned to attract varying buyer interests.
"We were able to say, 'Look, this is what the buyers are going to need in each situation, and this is what the financiers are going to need', and then work to build all of our advice and guidance into the company's preparation process," said Bryan McLaughlin, another leading partner in the firm's transactions group. "It's not just about the mechanical tasks associated with compiling financial information. It's also about applying deep expertise and experience in making divestitures work and being disciplined, vigilant and relentless about how to best capture value, ideally, at every stage and process of each transaction."
PwC worked with the seller to help them think like the buyer. Financials were prepared by the client in such a way as to anticipate how each unit would be viewed by the marketplace. Together, the client and PwC tried to see that potential buyers wouldn't uncover any surprises during the due diligence process — surprises that could ultimately drive down sale proceeds and delay deal close. They assessed earnings trends and quality. They cleaned up working capital matters. And they identified not just risks related to financial information but opportunities as well.
Knowing precisely where to look for value is essential. According to Nahass, divestitures present three primary sources of value: sales proceeds, transition services, and remaining operations. Value can be captured or lost in each of these. Sale proceeds can be eroded by surprises, delays, or other factors. Planning for transition service levels and pricing can begin too late, placing the seller on the wrong side of the bargaining table. And the chance to eliminate stranded costs or reorganize remaining operations can be missed.
"Divestitures may not get the spotlight that mergers and acquisitions enjoy, but treating a divestiture like a poor cousin of a merger or acquisition is a sure way to destroy value," says Nahass. Smart sellers, however, can take steps to improve the odds. "Once the decision to sell is made," Nahass says, "it’s critical to ensure a fast-paced separation that makes early use of disciplined planning, a well-organized launch, and a tireless focus on the priority issues that drive value."
Timing is key. "The unfortunate truth," says McLaughlin, "is that U.S. companies are much less likely than their European competitors to bring all of their advisers — including their accountants — to the table at the start of a divestiture process. This is one client that did the right thing.”
It’s also one company that is now reaping the rewards. The in-house teams gained the technical accounting advice, tactical know-how, and skilled resources they needed to complete the carve-out process and return the company to its core competencies with speed and efficiency. Management expects to trim one-third of the company’s operations while preserving shareholder value and strengthening its competitive position.
And the numbers are on the way back up. Revenue growth is more than 14% higher compared to the prior year and recent gains in other key financial metrics are credited with bringing more than a few smiles back to the boardroom.
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