What causes executives to delay or avoid divestitures, even when it is evident that these transactions will help their companies, and in some cases save them from decline or even extinction?
Most fundamentally, divestitures suffer from bad public relations: they tend to be viewed as a last resort to use when something is going wrong, like an acquisition that isn’t working out or a business whose performance is deteriorating.
Perceived financial constraints can impede divestitures as well. Generations of executives have been advised to milk, not divest, their cash cows. After all, how does one justify eliminating a predictable source of cash, especially a source of cash for which potential buyers might not pay an acceptable price?
Ghosts from the past can also deter divestitures. What does it mean to get rid of the legacy business around which a company was built—especially when that company’s name reflects those original operations, or when that divestiture will cost many long-time employees their jobs?
Then, there is a compounding effect. The relative rarity of divestitures means that executives often lack the experience of having observed that divestitures can create value, let alone the experience of having undertaken one of them.
Clearly, the time has come to address the impediments to divestitures and to encourage the development of effective capabilities for these transactions. This book sets out to achieve these objectives.