Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Francesco

100% Recommendation Rate

3,411 Meetings

15,581 Q&A Upvotes

USD 449 / Coaching

2

Carve-outs / Divestitures

Any suggestions on issue trees / considerations for carve-outs / divestitures? I know what aspects to consider for mergers/acquisitions, but there are definitely additional considerations for carve-outs such as stranded costs etc. I've had a hard time finding practice case studies around this topic. Thanks in advance!

Any suggestions on issue trees / considerations for carve-outs / divestitures? I know what aspects to consider for mergers/acquisitions, but there are definitely additional considerations for carve-outs such as stranded costs etc. I've had a hard time finding practice case studies around this topic. Thanks in advance!

(edited)

2 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Francesco

100% Recommendation Rate

3,411 Meetings

15,581 Q&A Upvotes

USD 449 / Coaching

Hi Anonymous,

in the analysis of divestitures I would consider the following areas:

  1. Clarify the goal – what does the company want to reach with the divestiture (higher profits, lower costs, etc)?
  2. Identify the market evolution for the business line that could be sold – this will help to understand what could be expected from that branch in the future.
  3. Identify if it is feasible from a quantitative point of view to reach the goal identified in step 1 thanks to the divestiture. In doing so, you should consider possible synergies and cannibalization with other areas,possible sunk costs present and the opportunity cost to invest in such branch versus other business lines.
  4. Even if the business line divestiture helps to reach the goal, verify if it is possible to sell it for the appropriate price.
  5. Consider any risks involved with the reduction of business activities not already included in the previous analysis – eg decrease of diversification

Hope this helps,
Francesco

Hi Anonymous,

in the analysis of divestitures I would consider the following areas:

  1. Clarify the goal – what does the company want to reach with the divestiture (higher profits, lower costs, etc)?
  2. Identify the market evolution for the business line that could be sold – this will help to understand what could be expected from that branch in the future.
  3. Identify if it is feasible from a quantitative point of view to reach the goal identified in step 1 thanks to the divestiture. In doing so, you should consider possible synergies and cannibalization with other areas,possible sunk costs present and the opportunity cost to invest in such branch versus other business lines.
  4. Even if the business line divestiture helps to reach the goal, verify if it is possible to sell it for the appropriate price.
  5. Consider any risks involved with the reduction of business activities not already included in the previous analysis – eg decrease of diversification

Hope this helps,
Francesco

Hi Anonymous,

in assessing whether a divestiture of a particular business line makes sense, there are a couple of different angles you might want to consider:

  • Profits: you should first check whether the business line generates profits, and what the outlook to the future is (will it generate profits going forward?).
  • Profitability: Not to be consfused with profits - how much profit is generated relative to resources spent (i.e., profits over cost)? Thereby, you check whether there are better options for utilizing resources (e.g., other lines of business that could be expanded)
  • Cannibalization: Even if profits and profitablity look good, cannibalization could eat into other areas of business. So this should also be checked.
  • Natural ownership: there might be other companies that, due to their particular asset base or footprint, can extract more value out of your business line. In that case it might be worthwhile to sell off this particular line of business for a price that exceeds expected profits over your target time horizon.

All of these aspects should be succinctly outlined and then assessed (either all of them one by one (in order of priority according to your hypothesis), or following guidance by the interviewer).

Hope this is helpful!

Cheers,

Sidi

Hi Anonymous,

in assessing whether a divestiture of a particular business line makes sense, there are a couple of different angles you might want to consider:

  • Profits: you should first check whether the business line generates profits, and what the outlook to the future is (will it generate profits going forward?).
  • Profitability: Not to be consfused with profits - how much profit is generated relative to resources spent (i.e., profits over cost)? Thereby, you check whether there are better options for utilizing resources (e.g., other lines of business that could be expanded)
  • Cannibalization: Even if profits and profitablity look good, cannibalization could eat into other areas of business. So this should also be checked.
  • Natural ownership: there might be other companies that, due to their particular asset base or footprint, can extract more value out of your business line. In that case it might be worthwhile to sell off this particular line of business for a price that exceeds expected profits over your target time horizon.

All of these aspects should be succinctly outlined and then assessed (either all of them one by one (in order of priority according to your hypothesis), or following guidance by the interviewer).

Hope this is helpful!

Cheers,

Sidi

Related case(s)

General Holding

Solved 45.0k times
General Holding Our client is a French holding company with annual revenues of about €1 billion.      Their portfolio consists of different companies that are mostly in manufacturing industries such as the oil & gas industry and the automotive industry.They do not have a specific investment focus. They prefer to buy the best companies available that are also related to their existing businesses. They are thinking about acquiring an auto parts dealer, OTOpart, and want to know whether you think it is a good idea.
4.3 5 1548
| Rating: (4.3 / 5.0) |

Our client is a French holding company with annual revenues of about €1 billion. Their portfolio consists of different companies that are mostly in manufacturing industries such as the oil & gas industry and the automotive industry.They do not have a specific investment focus. They prefer to ... Open whole case

Chip equity

Solved 37.4k times
Chip equity Our client is an electronics holding called Chip’n’Chip. They want to invest in a Printed Circuit Board (PCB) manufacturer called OnBoard, and asked you whether it’s going to be a good investment. How would you help them?
4.5 5 1310
| Rating: (4.5 / 5.0) |

Our client is an electronics holding called Chip’n’Chip. They want to invest in a Printed Circuit Board (PCB) manufacturer called OnBoard, and asked you whether it’s going to be a good investment. How would you help them? Open whole case

Paper Print

Solved 16.1k times
Paper Print A printing company is planning to take over another printing company with similar technology and printing machines. The candidate is supposed to evaluate the acquisition by answering a line of questions that are presented in the “suggested approach” section.
4.2 5 356
| Rating: (4.2 / 5.0) |

A printing company is planning to take over another printing company with similar technology and printing machines. The candidate is supposed to evaluate the acquisition by answering a line of questions that are presented in the “suggested approach” section. Open whole case

SuperBurger

Solved 14.5k times
SuperBurger Our client is SuperBurger, a fast food chain that operates in the same class as McDonalds, Wendy's, Burger King and so on. They're the fourth largest fast food chain worldwide in terms of number of stores in operations. SuperBurger owns some of its stores, but 85% of its stores are owned by franchisees. As part of its growth strategy, the company has analyzed some potential acquisition targets including Tasty Donuts which is a growing doughnut producer active in the US and internationally.  The client asked us to help him decide whether he should acquire the company or not. 
4.0 5 1215
| Rating: (4.0 / 5.0)

Our client is SuperBurger, a fast food chain that operates in the same class as McDonalds, Wendy's, Burger King and so on. They're the fourth largest fast food chain worldwide in terms of number of stores in operations. SuperBurger owns some of its stores, but 85% of its stores are owned by franchis ... Open whole case

REA Reinsurance

Solved 11.9k times
REA Reinsurance Your client, REA, is a reinsurance company. REA recently acquired another reinsurance company (approximatively same size): the choice of this company was notably based on its product portfolio as well as its market presence which appeared complement with REA. However, the acquisition is not well received by the market. The acquisition price is considered too high and the transaction has not been well graded. REA management asks you to evaluate the transaction.
4.1 5 960
| Rating: (4.1 / 5.0)

Your client, REA, is a reinsurance company. REA recently acquired another reinsurance company (approximatively same size): the choice of this company was notably based on its product portfolio as well as its market presence which appeared complement with REA. However, the acquisition is not well r ... Open whole case