We help clients navigate the entire divestiture process, with a focus on maximizing value and mitigating risk.
Creating value through the divestiture process
Driving value begins with proper planning and requires end-to-end management of the divestiture process. By developing a thoughtful road map that ranges from aligning the plan with corporate objectives to building transition strategies to implementing feedback loops post-close, you can ensure that the divestiture pays off for everyone involved.
Kearney helps set the stage for your divestiture planning by aligning your divestiture vision with corporate strategies. Then we evaluate the company portfolio—considering factors such as your product portfolio, customer mix, manufacturing assets, and competitive landscape—to identify and develop potential separation scenarios. Each of these scenarios is assessed for its financial impact on sales, COGS, and SG&A. Finally, we spearhead a reverse due diligence process to ensure you’re ready to sell.
Confirm spin-off candidate and define deal jewel.
Develop separation scenarios and financial impact.
Executing a successful separation requires operation and organizational planning long before the deal is announced. The degree of change depends on the asset’s importance to the remainco. The new operating model design must be holistically aligned with the remainco’s strategy. Organizations must also consider issues of governance, resources, and enablers to ensure a solid operating model can be put into place. Getting several important design elements including key business processes, locations, and FTEs required is essential for success.
Establish separation management office and governance structure.
Define and optimize the operating model to reflect divestiture changes.
Assess divestiture implications for people, assets, contracts, and processes.
Build detailed transition plans for all functions and their respective people, assets, contracts, and processes.
Successful TSA management is an end-to-end process that includes TSA scoping and governance, TSA development and execution, and TSA tracking and exit. The degree of TSA support is driven by the level of reliance on the remainco, with technology playing a key role. In addition, a clear governance structure will also ensure strong and timely TSA execution.
Ensure business continuity on day 1 by defining appropriate TSA scope and services needed.
Help negotiate TSA terms such as services, pricing, duration, and ownership.
Establish and monitor TSA migration and exit plans.
To create the cost baseline, we can perform a “zero cost base.” This enables divested businesses to remain cost-neutral, while focusing “cost transformation” on longer-term competitiveness. We can then explore a full range of cost transformation levers, from complexity and demand management to technology enablement. The cost takeout levers then translate into tangible and executable plans, supported by Kearney’s proprietary tool (NEXT). The combination ensures transparency, collaboration, and efficiency within complex separations.
Identify sources of dis-synergies and stranded costs.
Develop actionable cost takeout and cost transformation plans.
Track and manage cost takeout via live reporting tools, process, and governance.
Organizations need to first create a compelling vision that sets the direction and provides the impetus for change. The vision becomes actionable by building accountability, capability, and ownership among those who are impacted by the separation. By intentionally developing the culture, you can engender a deep commitment to work in a different way. Finally, the change needs to be embedded in the day-to-day structure so that the organization’s performance can reach the next level.
Develop robust and timely communication and change management plans for customer, market, and employee stakeholders.
Implement a closed-loop deal monitoring and feedback process.
The Kearney approach in action
Divestitures play out differently across industries. But the most successful ones offer insights and learnings that all businesses can benefit from. Here are five case studies that highlight how we applied our unique approach to create value from divestitures for some of the world’s leading companies.
Separation strategy and deal preparation for a leading US retailer
A multiyear, multi-scenario plan for the divestiture of 500 to 1,000 retail locations More
A major US small format retailer was planning to significantly shake up the industry by acquiring a competitor—making the retailer the largest player in its segment. To support its case with regulators, the client proposed a daunting divestiture of 500 to 1,000 locations. The company also needed simultaneous carve-out and integration plans to prepare for the transaction close. They turned to Kearney to ensure the success of the complex transition, partnering with us on thought leadership, strategic messaging, and program oversight.
We implemented a robust program management structure, which addressed every part of the process. Joint functional teams focused on both integration and divestiture planning priorities. They also partnered closely with the deal team to analyze and frame key deal elements including banner transition, IT system carve out, and buyer strategy. We developed playbooks, multiyear master plans, and methodic strategic assessments, all of which facilitated cross-functional and cross-company efforts. The result revealed the value of a comprehensive approach—our client experienced a reduction of more than $100 million in transaction risk.
Separation planning and execution for an insurance client
An ambitious transformation that yielded cost savings and stock price improvements More
One of our insurance clients faced the significant challenge of divesting four complex businesses, while also improving the operating effectiveness of the new, more focused organization. The divestiture was the most ambitious transformation in the company’s history, spanning $2.5 billion in combined revenue, 4,000 employees, more than 300 shared contracts, and more than 150 shared applications.
Kearney led the end-to-end divestiture management across all four deals. The engagement involved setting up the governance model, conducting operational complexity assessments, negotiating TSAs, and setting the enterprise vision and objectives at the CEO level.
We launched five enterprise-wide opportunities that transformed the organization’s operating model, and executed four divestitures in a short time frame that brought $2.2 billion in capital. In the process, we also ensured a smooth day 1 transition and a clean separation, and transformed how the organization drives performance. The transformation drove $350 million in cost savings and an 81 percent increase in the client’s stock price.
TSA management for a global ingredient solutions provider
Driving self-sufficiency through identifying and negotiating roughly 70 TSAs as part of a $1.3 billion acquisition More
An essential component of the divestiture process is developing, managing, and executing TSAs. And the process can be especially daunting during a fast-paced divestiture with an international footprint. A global ingredient solutions provider was pursuing a $1.3 billion acquisition to diversify its portfolio, strengthen its market position, and enhance its global presence. However, there was a complicating factor: the acquisition target was dependent on its parent company in several functional areas and the acquiring company didn’t have legal entities in new markets. Therefore, the client was facing significant difficulties in transferring employment.
We supported the identification and negotiation of 70 TSAs globally for services in IT, finance, HR, and procurement. The functional teams completed detailed descriptions of the services required, expected costs, and length of duration. Notably, the company established self-sufficiency one year after close with 95 percent of TSAs exited on their target date or earlier.
Cost takeout for a global analytics products and services provider
Eliminating legacy inefficiencies for a divested company More
Divestitures from a parent company can present an attractive opportunity for starting fresh. There’s the chance to cast off legacy overhead burdens and redesign inefficient organizations. A global research/analytics products and services provider recently divested and sold to private equity owners. Though the deal was complete, the divested company was bogged down by excessive overhead costs from legacy systems and processes remaining from the parent company. In addition, there was inefficient organization design due to poor span control, covering about 75 percent FTEs.
Kearney’s assessment process identified several opportunities and improvement levers. We uncovered opportunities across the spectrum, including simplifying legacy systems, rebalancing the organization structure, and reassessing talent development. The cost takeout process ultimately identified about $75 million (roughly 14 percent) in run-rate savings, split between short- and long-term initiatives. What’s more, an operating model transformation drove an additional $20 million in savings, largely due to FTE reductions and relocations to lower-cost regions.
Change management and comms for an international energy company
Partnering to guide and steer the communication of a divestiture More
Even if a divestiture plan is in place, the transformation will not succeed unless change is managed and motivated from within. An international energy generation company was searching for a strategic partner in the transaction process. One of the company’s top priorities was effectively managing the change and communicating the divestiture.
Kearney provided support throughout the transaction and negotiations and managed the process through every step in the transformation. We were a crucial partner in guiding and steering the entire divestiture process. Importantly, we also supported the political interests of the divested company during the investment of an international investor and managed the communication of the divestiture.