Sale of a Company or Business Unit from the Portfolio of a Group

As a manager of a group of companies, what goals guide you when you want to sell a company or business?

You may want to focus management attention on other businesses. You may want to focus the resources available to the corporate group on other businesses. Perhaps you want to realign your group of companies. Perhaps you need cash to service liabilities.

You are selling for strategic, operational or financial reasons. In any case, you want to optimize the selling price. You also don’t want your remaining business to suffer from the spin-off.

To optimize the selling price, you will try to “make the bride beautiful.” But what will be perceived as “beautiful” by potential buyers?

The company should be able to operate independently of your group of companies. This means that all essential operational functions should be present in the company. This is not a given if a company has previously been run in a group context. In many cases, potential synergies were sought for efficiency reasons, and not only administrative tasks were transferred to central services in a holding company. Purchasing, materials management, human resources and controlling are often also centralized. IT is also managed centrally in many corporate groups. While this makes operating companies better integrated into group networks and simplifies their management, it can make it more difficult to spin off operating companies. If the operating unit is taken over by another corporate group, the lean structure can be an advantage, but if it is to be spun off as a stand-alone unit, extensive preparations and additions must be made either by the seller or the buyer. This can reduce both the willingness to buy and the willingness to pay of interested parties. Such business units are therefore fungible only to a limited extent. So, as a matter of principle, consider how far you want to limit your flexibility with the efficiency benefit of centralizing services.

To increase the selling price, it is relevant to optimize the earnings situation of the business unit to be divested. In order to influence this, the first question is whether the business to be sold can be distinguished from the group. Will all sales be able to be made even without the group affiliation? Do sales processes depend, if necessary, on the availability of other services that the business unit then being sold cannot offer? Will customers actually buy from the sold company in the future or will they remain customers of the seller? Try to clarify such questions in terms of potential buyers in order to be able to demonstrably justify your sales price expectations.

Have you perhaps disadvantaged the business unit for sale in the group context by selling input materials to the unit at higher prices, charging disproportionately high prices for central services, or keeping submarkets closed to the business unit for strategic reasons? Resolve such distortions as far in advance of divestment activities as possible, or at least disclose them in a comprehensible manner.

Business groups often act in an agile manner. This can result in decisions that have to be implemented at short notice, making it impossible to prepare companies for divestment. Lower enforceable sales proceeds are the price of acting at short notice. Flexibility may be justified from a strategic perspective. But in many cases, planning ahead could be done. Encourage long-term M&A planning in your management team, without closing off strategic opportunities.


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