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Divestitures are an important tool for creating value. Once seen merely as a way to offload underperforming units, divestitures have evolved into strategic tools that allow companies to sharpen focus, reallocate capital and stay agile amid changing business dynamics.
Management should use the portfolio review process to help build an objective, data-driven case for any divestiture it is considering. But the ultimate decision isn’t management's alone. C-suite leaders will need to convince the board of directors that the business should be divested. Management should be ready to explain to the board how the process will work, including detailing the financial, tax, operational and strategic implications of the move and how it can help create value over the long term.
C-Suite leaders should articulate why divesting the business unit creates more value for the company and the parent company. They should discuss how a divestiture can catalyze and support a broader transformation strategy. Management also should explain why the market and business are ready for the divestiture at that time.
Executives should be able to outline the strategic view — from the market drivers for the divestiture to the anticipated return and how those proceeds should be reinvested in the remaining company or for any new acquisitions.
The why: Moving beyond “It doesn’t fit”
Board approval for a divestiture isn’t a given. Management can’t rely on vague justifications that the business is “non-core” or “it’s underperforming.” The case should be framed in terms of portfolio focus, capital allocation, and long-term shareholder value.
To prepare, management should ask itself several foundational questions:
- Does this business align with our future strategic direction? Make it clear if the asset no longer supports where the company is heading with its customer base, geography, capabilities, or risk profile. Be ready to show the board how retaining the business can create distraction or dilute focus.
- Can this business create more value under different ownership? Are we the leading owners? Describe the growth potential that a new owner could unlock and whether it requires investments, scale or focus your company can no longer prioritize.
- What is the cost of inaction? Lay out the opportunity cost of holding onto the asset. Those could include an inefficient use of capital, slowing transformation or creating execution risk across other strategic priorities.
- Should we consider a sale, spin-off, or some other type of strategic divestiture? Determine how to structure it in a tax-effective way to help create value for shareholders and the parent company.
- Should we sell the business to pay down debt, invest in innovation, or return capital to shareholders? De-leveraging can be important after a large acquisition or during downturns.
Management also should model the proposed divestiture’s impact on margins and return on invested capital (ROIC) while showing how the proceeds could be redeployed. The presentation it develops for the board should incorporate market intelligence. This includes what buyers are paying for similar assets, what cost structures are typical post-separation, and how similar spin-offs or sales have fared with peers.
The how: Where strategy meets reality
Even the strongest strategic rationale won’t be convincing if the board lacks confidence in execution. The board likely will want to see a comparative analysis of potential deal structures — sale, spin or Reverse Morris Trust (RMT) — with valuation ranges for the divestiture and tax impacts for both companies. The board also may want to consult with strategic advisers to evaluate management’s proposal.
Divestitures are operationally complex by nature. Carve-outs often involve untangling decades of shared systems, contracts, employees and processes. Divestiture success often depends on teams working together across corporate development, supply chain, commercial, finance, technology, HR, tax and other business operations.
The more effective executives are ready to answer the following board questions:
- What functions are shared, and what should be replicated or right sized for the stand-alone business?
- Where are the financials “commingled,” and how can we build clean, audit-ready carve-out statements?
- Are key stakeholders, such as tax, technology and legal, aligned on separation requirements and risks?
- How would evolving geopolitical and trade considerations impact a divestiture?
Being able to answer these questions shows that management is ready to execute.
Divestiture diagnostics: Proving you can move quickly
Demonstrating that the team is prepared requires moving beyond general readiness into detailed, evidence-backed planning. A divestiture diagnostic can help by translating strategic intent into tangible planning assumptions.
This diagnostic should include an analysis of:
- Optionality planning, which assesses strategic and operational considerations across different deal types (e.g., spin vs. sale vs. joint venture). Implications for transaction perimeter and sequencing should be included.
- Tax policy, such as tax cost under each deal type (sale vs. spin vs. RMT), risk assessment by jurisdiction and integration with company-wide tax planning.
- Stranded costs, including IT, facilities and HR functions designed for a larger company. Procurement losses (e.g., volume discounts) and legacy liabilities also should be considered.
- One-time separation costs, such as legal and advisory fees, standalone setup costs, and disentanglement expenses should be considered.
- Run-rate costs for the carved business under a standalone scenario, such as ongoing sales, general and administrative and operating expenses for the new company. The financial viability of the separated entity also should be considered.
- Separation strategies that outline how to expedite the deal close and stand up for the new company. This includes pre–Day 1 vs. post–Day 1 execution opportunities across important functions.
- Complexity and risk scorecard, which evaluates legal, tax, financial, regulatory and operational factors. The assessment should show how those factors may impact deal value, timing or execution risk.
- Day 1 Roadmap, which defines key milestones, cross-functional dependencies and a refined sign-to-close timeline. The roadmap should focus on the imperative workstreams required to enable a smooth launch that helps preserve business continuity.
A well-structured diagnostic typically takes 4–6 weeks to complete and provides the board with a transparent view of the trade-offs and opportunities across deal types.
Overcoming common board objections
Board hesitation is common and is often justified. Directors are rightfully cautious when it comes to irreversible decisions that affect shareholder value, employee morale, or the company's long-term growth strategy.
To move the board from considering to committing, management should proactively address common objections like the following:
“Will this hurt our revenue growth or scale?”
Management response: Demonstrate how the divested asset may be dilutive to growth metrics or margin of performance. Or show how its exit can free up capital and attention to double down on core businesses with higher returns.
“What could this mean for our people and culture?”
Management response: Provide clarity on the talent impact, particularly in shared services or leadership teams. Show that there’s a thoughtful transition plan, including communication, retention and cultural continuity for both sides of the deal.
“Are we leaving money on the table?”
Management response: Offer data on current market appetite, comparable transaction multiples and buyer interest. Be prepared to discuss the impact of potential valuation-increasing strategies such as targeted improvements to a business prior to sale or the in-flight launch of new initiatives. Detail how the potential buyer universe (e.g. strategic acquirers and private equity) impacts valuation. A well-articulated view of the potential valuation strengthens decision-making.
“Can we actually separate cleanly?”
Management response: Share the work done to prepare — the readiness assessments, operational playbooks and the tools in place to support clean financials, Day 1 standup, and transition services agreement (TSA) planning if needed. Confidence in execution often unlocks confidence in the strategy.
“What’s next after the divestiture?”
Management response: This is imperative. Boards want to know that divestiture is part of a broader story. Be ready to explain how the move aligns with your long-term capital strategy, where proceeds can be redeployed and what success can look like post-separation.
The bottom line
In today’s market, the companies creating long-term value from divestitures are those with focused preparation and precise execution. Boards demand more than vague justifications. They expect a vision backed by data, execution rigor and a roadmap to long-term growth. With the right preparation, divestitures can serve as catalysts for transformation, not just transactions.
How PwC can help
Our Deals team can work with you to turn high-stakes divestitures into high-growth opportunities through our strong combination of responsiveness, collaboration and experience across the global marketplace and with an intimate knowledge of your business. We can help improve your strategic divestiture with a holistic solution, leveraging skilled industry specialists and on-the-ground experience to secure value at each step. We can also help you identify potential divestiture opportunities through our strong portfolio reviews and build the case for them to the board through a divestiture diagnostic.
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