End Divestment

In the first article we discussed how and why businesses may have accumulated subsidiary operations that are now non-core and some of the factors that can lead to a need to divest these. In this one we look at what objectives you may want to secure in achieving a divestment and how these impact on how you will go about a divestment of a non-core operation as well as factors which can block a disposal.

What Do You Want Out Of A Disposal?

The key outcomes you are looking to achieve from the disposal process will obviously be highly influenced by main reasons for disposal.

In some cases the driver will simply be cash, and the more of it, the faster, the better. But in many situations cash may not actually be the sole, or even a key, consideration and other factors may rank higher such as:

• Freeing up management time – to focus on the core areas that are important to the future of the business, in which case speed and certainty of completion may be key criteria. In these cases you will be looking to find parties in whom you can have confidence to act quickly and to see a transaction through to completion.

• Maintaining public relations and market image – so as not to damage the retained business’s standing, or its customer relationships. After all, the core operation may want maintain ongoing business dealings in respect of its other services. In these cases you will be searching for parties who can be relied upon to both act with discretion, as well as being a safe pair of hands into which to pass the divested operation so as to provide ongoing services to the customer.

• Maintaining employee relations – is a similar issue to that of customers as the business may want to demonstrate that despite the disposal it is concerned to ensure its employees are looked after appropriately. In these cases you will be looking to see that the other party is intending to take the business forwards with the existing employees.

By way of an example, a US multinational decided that it wanted to focus on its core products which in part involved supplying into the automotive sector with the restructuring to be completed by the year end. However as a legacy of a past acquisition it had a small and poorly performing UK based manufacturing unit, operating in a completely different field in which the parent group had no expertise; but which was supplying key components into its main automotive customers. Read the rest of this entry »

Every enterprise migrates through up to four development stages: emerging, growth, maturity, and declining. The stages are broad with chasms in between, and the passage is not necessarily linear. The stages apply to both upwardly mobile and lifestyle enterprises. Most emerging enterprises start as small “de novo” ventures. However, some emerging enterprises are incubated by larger enterprises, and benefit from their resources and capabilities. By the maturity stage, some ventures will have grown into medium or large enterprises ranging from single entities with one product and/or service line, to diversified offerings, to conglomerates with multiple entities and business units in many different industries. Diversified enterprises leverage resources across lines and units, whereas conglomerates are profit intimate.

Definitions of small, medium, and large enterprises vary according to context, and are usually based upon the number of employees, size of revenue, or capitalization. Most enterprises fit the “small” definitions. Many small enterprises do not have employees because they are owner-operated sole proprietorships, partnerships, or limited liability companies. However, the officers of owner-operated corporations are employees if they are paid salaries. Hence enterprises are also classified as employer and nonemployer firms.

Enterprise failure rates are high – many migrate straight from either the emerging or growth stages to the declining with little to no opportunity for recovery. In tough economic times, even mature enterprises struggle, especially when paradigm shifts affect assumptions, concepts, practices, and values. Causes for failure include both lack of capital and enterpriship (entrepreneurial, leadership, and management) competencies. Focusing on short-term operations activities while ignoring long-term marketing initiatives is a common complaint.

Emerging:

An emerging enterprise needs an entrepreneurial mindset to transform innovation into value. The founding entrepreneurs or owners may be experiencing a major career change in order to establish the enterprise so as to realize an ambition to offer a product and/or service or own a business, or because they want to do something different in life.

The agenda of an emerging enterprise addresses causing change through new innovative products and/or services, or by developing new markets for either a new or existing value proposition. An emerging enterprise should seek to earn revenue as soon as opportunities allow.

Emerging enterprises earn little to no profit. Under generally accepted accounting principles, they are described as “development stage enterprises” – emphasizing planning and policy development and research and development activities, including raising capital. The organizational costs to establish the holding entity and to raise the initial capital are separate from the other start-up costs and expenses, and can be amortized over time.

Bureaucrats struggle in emerging enterprises because of the lack of structure. They are an ideal place for product developers.

Growth:

A growth enterprise has made the transition to devoting significant efforts to sales and production activities with results. A growth enterprise needs entrepreneurial, leadership, and managerial mindsets. It must maintain the entrepreneurial mindset of an emerging enterprise. It requires a leadership mindset to communicate the enterprise strategy – the aspiration and industry position and posture. It requires a managerial mindset to establish process and order, otherwise chaos will result. The aspirational statements include values, mission, vision, and value proposition. It must stress both mission and vision because it is important that all constituencies understand its purpose and direction. Read the rest of this entry »