The Ins and Outs of Business Divestiture
Paul Liska is an experienced senior-level executive and private investor based in Chicago with a background in business integration, acquisitions, and divestitures. As executive VP and CFO at St. Paul Companies, Paul Liska led all acquisition and divestiture activities. Knowing when to divest business assets is an important skill, and it takes a results-oriented and clear-headed approach.
The reasons for divestiture in business break down into five broad categories. A business might need to increase short-term cash flow and choose to either sell or license assets to solve a problem. This is usually the result of unforeseen circumstances.
Underperforming assets pose a financial risk to an organization because they can have staunch supporters who are unwilling to let them go. Even so, this is the most common type of divestiture, and boils down to selling off assets that aren’t producing expected returns.
Another reason is a business biting off more than it can proverbially chew. If a business expands too quickly into new markets, it may be forced to downsize its activities through divestiture.
Selling subsidiaries is also a common form of divestiture, and it’s closely linked to divesting underperforming assets. However, sometimes divesting in a subsidiary may be linked to the evolving image branding of a company that wants to create distance from past activities.
Finally, a business can simply close due to a number of factors. Shutting down a business is also a form of divestiture.
