What to consider when selling part of your business
Clients often approach us to discuss divesting a division of their enterprise. Often, their businesses are quite diversified and they are looking to divest a segment of their company that doesn’t produce the same benefit as other parts of their business. Other times, clients consider this option as a way to slowly reduce the size of their organisation over time in a bid to reduce the management or administrative burden that comes with running a multi-divisional enterprise.
Regardless of the reasons, we have found that a high degree of care should be taken when considering selling off part of your business. Some of the considerations required are listed below, however it is vital to seek advice early in your deliberations to ensure you secure an optimal outcome.
Does the division that you are seeking to divest have its own unique customers? How many customers are shared between the part of your business that you are seeking to sell and the rest of your organisation?
If many of your customers are engaged with multiple divisions of your business, including the division that you are considering selling it may be worth reconsidering a divestment.
Consider the role of staff within your business. Are staff and management divided into business divisions, with different staff and management holding responsibility for different divisions? What staff and management will need to move with the division upon divestment to the new operators, and will this impact the rest of your organisation?
Early planning may be required in this area to ensure there are clear and segmented lines of staff to allow for an easy divestment.
Financials and Records
Are their clear and concise financial reports and records outlining the performance of each division within your enterprise? Will these financial reports and other records stand up during due diligence?
If there is little or no credible record keeping at the divisional level, it may be difficult or impossible to enact a successful divestment.
Divesting a division of your enterprise can carry with it a range of other costs that should be weighed up, including:
- Additional professional fees: There may be additional professional fees in the lead-up and completion of your divestment. These may be required to complete an analysis of your planned divestment, to prepare divisional financial reports and records or to account for lengthier transaction time-frames.
- Costs of splitting up: There are normally some other hidden costs associated with splitting up your business. For businesses where all divisions occupy one premises, the acquirer may need to find suitable real estate to enable trading to continue, impacting on their valuation of your division. Further, in the divestment of your division, you may lose talent in your management ranks which could effect the remaining divisions of your organisation. Also, you should consider what IP and trade secrets might escape during your divestment and what costs this may have for your business.
At Quinn M & A we have the experience and expertise to ensure you receive the right advice when considering the sale of a division of your business.
If you are seeking a professional advisor to assist you with the merger, acquisition or divestment of a business with an enterprise value of between $1 million and $50 million please contact Quinn M & A on 02 9223 9166 or email [email protected] to find our nearest office.