When contemplating which business units or product lines to put up for sale in today’s challenging market, it might be wise to borrow some tactics from the real estate market. It really comes down to three important guiding principles in planning a divestiture as part of your deleveraging strategy:
1. Know your market – cultivate target buyers to avoid a fire sale. Identify players looking for complementiarity in products, services or customer base.
2. Model the outcome on your going-forward financials – freeing up cash may be top of mind for everyone, but we all need to think past the current crisis and understand what the impact will be on sales and profitability going forward. If you don’t have a business intelligence toolset in place already, you may have difficulty in achieving the type of agile scenario modelling that is necessary here. Infoworld is reporting BI as a key spending area in the recession, specifically for determining profitability.
3. Know where to invest, or “design to sell.” – there may be secondary benefits, above and beyond a divestiture’s products, services, and customer base. Specifically in the technology architecture, especially if the business unit is on its own (instead of shared corporate) platforms. Ancient mainframe technology is like the walnut panelling and avocado shag carpeting lurking in the basement. Customized applications with their big in-house support teams are like the pink stucco patio and poolhouse a proud homeowner showcases, causing the buyer to race down the road to the next listing. Call in the design team, these could be good spots to begin a corporate makeover, as they are very likely to increase the value of the sale.
On the flip side, things like collaboration tools and business process management suites are like the well-appointed master suites and media rooms that can help a buyer warm up to the sale. In addition to things like a lean operating architecture, these technologies help make a divestiture an attractive asset for buyers looking to build out a platform company.