Divestitures: preparing assets for a successful sale

December 2026  |  FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

December 2026 Issue

Divestitures have become an increasingly important component of corporate strategy, offering companies an opportunity to sharpen operational focus, unlock capital and reposition portfolios for future growth. Whether driven by changing market conditions, financial pressures, regulatory requirements or a desire to concentrate on core operations, the decision to sell a business can create significant value for shareholders while providing new opportunities for the asset being divested.

However, executing a successful divestiture is rarely straightforward. From identifying suitable assets and establishing an appropriate valuation to preparing financial information, managing buyer due diligence and separating operations, the process presents numerous challenges. Poor preparation can erode value, delay completion or even undermine the wider strategic objectives of the transaction.

For companies considering a sale, the challenge is not simply to identify a willing buyer but to ensure the asset is positioned to attract competitive interest, withstand scrutiny and achieve a successful separation. This process requires a disciplined approach that begins long before a business reaches the market.

Establishing the strategic rationale

For any divestiture, the starting point should be a clear understanding of the company’s strategic objectives and how the transaction will help achieve them. While financial pressures may encourage asset disposals, companies are increasingly using divestitures proactively to reshape portfolios and redirect resources toward businesses offering stronger long-term prospects.

According to Deloitte’s ‘2026 Global Divestiture Survey’, capital reallocation and operational focus have become prominent motivations for divestitures, reflecting a broader shift toward strategy-led portfolio management.

Boards and management teams must therefore undertake a comprehensive assessment of the corporate portfolio. Assets should be evaluated according to their strategic relevance, financial performance, growth potential and ability to generate an appropriate return on invested capital. Businesses that no longer align with the parent company’s objectives may represent suitable disposal candidates. Likewise, units requiring disproportionate management attention or those likely to benefit from alternative ownership may also warrant consideration.

Several factors should be considered before deciding whether an asset should be sold. A business may be underperforming because of insufficient investment, operational inefficiencies or changing market conditions rather than because it lacks underlying strategic value. Equally, a profitable business may still be an attractive divestiture candidate if another owner is better positioned to develop its potential.

Management must therefore consider whether a sale offers greater value than retaining, restructuring or reinvesting in the asset. This assessment should also consider alternative transaction structures, including partial disposals, joint ventures and demergers.

Understanding the value equation

Once a potential divestment candidate has been identified, management must determine whether a divestiture would genuinely create value.

Although sale proceeds are important, they represent only one component of the overall value equation. Other factors include transaction expenses, tax liabilities, separation costs and the future impact of losing the business’s earnings and cash flows.

Stranded costs deserve particular attention. Where a divested asset has historically benefitted from shared services, infrastructure or corporate overheads, the parent company may continue to incur certain expenses after completion. Unless these costs are eliminated or reallocated, the remaining organisation may experience margin erosion.

The intended use of sale proceeds is equally important. Whether capital is deployed to reduce debt, fund acquisitions, support organic growth or return funds to shareholders, management must be able to demonstrate how the proposed allocation supports the broader corporate strategy.

Valuation should therefore extend beyond the disposal itself and encompass the financial and operational implications for the remaining business.

Boards should also resist pursuing a transaction simply because market conditions appear favourable. An attractive headline valuation may conceal substantial separation costs or continuing obligations that ultimately reduce the economic benefit of the deal over the medium to long term.

Evaluating the full financial consequences under different scenarios allows companies to determine whether divesting an asset represents a credible route to sustainable value creation.

Preparing an asset for sale

Once a divestiture has been approved, preparation becomes critical. Companies that begin planning only after approaching prospective buyers create unnecessary risks and may discover significant issues when their ability to address them is constrained by the transaction timetable.

There is no ‘one size fits all’ timetable. Appropriate lead times depend on the complexity of the business, but substantial carve outs can require many months of preparation, particularly where an asset is closely integrated with its parent company.

According to EY’s ‘Global Private Equity Exit Readiness Study 2026’, early preparation delivers substantial benefits. Among surveyed private equity (PE) firms, those beginning exit preparations 12 to 24 months before a sale reported stronger outcomes than those starting less than six months beforehand. Indeed, 86 percent of PE leaders stated that early preparation improves sale valuations. Firms beginning preparations 12 to 24 months in advance were significantly more likely to report meaningful improvements in outcomes, while shorter preparation periods were associated with more rushed processes and weaker valuations.

For corporate sellers, preparation should begin with a comprehensive readiness assessment covering financial reporting, operational performance, legal obligations, technology infrastructure and organisational dependencies. These assessments enable management to identify issues that could undermine buyer confidence and address them before the asset reaches the market. This may involve strengthening management capabilities, improving working capital, addressing contractual weaknesses or implementing operational improvements to support future earnings.

Management should also use this period to develop a compelling investment proposition supported by credible financial forecasts and a clear explanation of the business’s competitive position, growth opportunities and potential synergies.

Preparation should not focus solely on making the asset attractive. Companies must also ensure the remaining organisation is equipped to operate effectively following separation. Establishing a dedicated divestiture team, supported by clear governance arrangements and appropriate external advisers, can help coordinate workstreams, maintain accountability and ensure transaction preparation does not disrupt day-to-day operations.

Valuation and due diligence

Potentially the most demanding aspect of a divestiture is establishing an appropriate valuation, particularly where a business has historically operated as part of a larger corporate group.

Historical financial information may not accurately reflect the asset’s standalone earnings potential. Revenue, expenses, working capital and capital expenditure may all be influenced by intercompany transactions, centralised services and shared infrastructure. Sellers should therefore develop reliable carve out financial statements that clearly differentiate the performance of the divested business from that of its parent.

A normalised earnings analysis should identify exceptional items, related-party arrangements and the costs required to operate independently. Appropriate consideration should also be given to future investment requirements, potential synergies and any expenses that will remain with the seller after completion.

A robust valuation must also reflect the perspective of prospective buyers. Strategic acquirers may identify opportunities to integrate the asset into existing operations, while PE investors may focus more heavily on standalone cash generation, leverage capacity and future exit prospects.

These considerations reinforce the importance of effective vendor due diligence. By undertaking internal financial, commercial, tax and legal reviews before commencing a sales process, sellers can identify potential concerns, support valuation assumptions and anticipate buyer questions.

According to PwC, vendor due diligence provides an independent assessment of a business’s financial position, performance and prospects, helping sellers address issues prospective purchasers may raise. Effective preparation enables sellers to respond confidently to requests, maintain transaction momentum and reduce the risk of unexpected findings disrupting the deal.

A well-organised virtual data room is another important tool. Financial records, material contracts, regulatory documentation, employee information and operational data should be complete, consistent and readily accessible, subject to appropriate confidentiality and data protection controls. Gaps or inconsistencies can trigger additional scrutiny, prolong negotiations or encourage buyers to seek price reductions.

Managing the separation process

Operational separation is another critical challenge, particularly in complex carve-out transactions. Businesses may share IT systems, manufacturing facilities, supply chains, intellectual property (IP), employees and contractual arrangements with their parent organisation. These dependencies must be identified and addressed to establish precisely what is being sold and what capabilities the buyer will require from completion.

A detailed separation plan should define the transaction perimeter, allocate responsibilities and establish the future operating model for both the divested business and the remaining organisation.

Legal and regulatory considerations also require careful management. Contractual consent requirements, employee consultation obligations, IP ownership issues and regulatory approvals can all affect transaction timetables. Failure to address these matters at an early stage may delay completion or create additional liabilities.

Technology separation is particularly important in today’s increasingly technology-focused environment. Shared enterprise systems and data infrastructure can be expensive and time consuming to disentangle, while inadequate cyber security arrangements may expose both parties to financial and reputational risks.

Maintaining momentum during negotiations

Once an asset reaches the market, an effective sales process is essential to protecting value. Identifying an appropriate pool of prospective purchasers, taking account of strategic objectives, financial resources, regulatory exposure and ability to complete the transaction, should be a priority.

While strong competition can strengthen the seller’s negotiating position, the process must be carefully managed to ensure bidders receive consistent information and have sufficient time to undertake meaningful due diligence. Financing certainty, regulatory requirements, completion conditions and proposed separation arrangements can all materially influence outcomes.

Negotiations should therefore address the full transaction structure, including purchase price adjustments, warranties, indemnities, liability allocation and post-closing obligations.

By anticipating potential points of disagreement and maintaining flexibility where appropriate, sellers can minimise execution risk without unnecessarily compromising value.

Managing the post-closing transition

Although completion represents a major milestone, it is not necessarily the end of the divestiture process. Where a business cannot immediately operate independently, transitional service agreements (TSAs) can enable the seller to continue providing essential services, including IT, finance, payroll and procurement, for a defined period. These arrangements facilitate completion while giving the buyer time to establish replacement capabilities.

The structure of a TSA is critically important. Poorly designed arrangements can create unexpected costs, prolong operational dependencies and generate disputes regarding service quality, pricing or termination provisions. Effective TSAs should clearly specify service levels, responsibilities, charges, end dates and dispute resolution mechanisms. Both parties should establish realistic plans to transition away from shared services as quickly as practical.

Stranded costs must also remain a key consideration throughout this period.

Delivering lasting value

Ultimately, a successful divestiture requires companies to look beyond the immediate transaction and consider the full lifecycle of the disposal.

The most effective sellers adopt a strategic approach to portfolio management, begin preparations early, establish credible valuations and address operational complexities before negotiations begin. Successful divestitures reflect considered strategic decision making rather than reactive responses to short-term pressures.

For boards and management teams, divestitures can serve as a powerful catalyst for change as well as a route to unlocking value. Success rarely depends on the transaction alone. It is shaped by careful planning, clear decision making, effective execution and sustained oversight after completion. When these elements are aligned, a divestiture can support wider strategic ambitions and strengthen the organisation’s long-term position.

Leading companies treat portfolio management as an ongoing discipline rather than an occasional response to market pressures. Regular assessment of business units, assets and growth opportunities helps management identify where resources can be deployed most effectively. Strong governance, reliable data and consistent reporting provide the foundation for informed decisions and allow organisations to pursue opportunities with confidence when conditions are favourable.

Buyer expectations are also evolving. Operational transparency, cyber security, digital maturity and supply chain resilience often play a significant role in valuation and deal attractiveness. Accurate, readily accessible information can improve credibility during due diligence and reduce execution risk. Companies that maintain focus on these fundamentals are generally better equipped to adapt, allocate capital efficiently and pursue future portfolio changes on their own terms.

© Financier Worldwide

BY

Richard Summerfield