Key commercial considerations for different buyer types
Different types of divestitures will have different needs. To unlock the full potential of a divestiture, whether it is a sale to private equity (PE) or a corporate (strategic) buyer, a joint venture (JV) or a spin-off, the new owner and RemainCo need to focus on commercial strategy early in the planning process by considering new market entry, channel expansion, pricing optimization and salesforce reorganization. Management considering a carve-out or other divestiture should also take these considerations into account in order to make an asset as attractive as possible to specific types of buyers or partners.
The PE buyer
PE buyers generally have a holding period and exit plan in mind, leading to specific commercial strategy considerations when purchasing a carve-out entity. They also typically have an extensive network, resources and technology platforms that they can share across their portfolio companies to drive digital transformation, enhance product development and innovation potential, or improve internal processes. While PEs may operate the carve-out as a stand-alone, they may have unique perspectives within the commercial functions, such as order-to-cash, application development or even digital customer service capabilities, based on their experience with other portfolio companies.
Pre-Day 1, some collaboration between the seller and the PE buyer is needed to establish a leaner, stand-alone commercial organization for the carve-out.
The strategic buyer
Commercial strategy initiatives, such as channel, customer and product vertical expansions, are critical to achieve the deal thesis.
Buyers may need to decide whether certain areas of the commercial organization, such as marketing, sales, customer service and order-to-cash, can be immediately integrated to garner efficiencies of scale or left separate for a time to avoid customer-relationship disruptions.
The deal thesis is likely to include the potential to grow both the current and acquired businesses through expansion into each other’s markets and establishing cross-selling operations. New product development can be boosted by combining research and development efforts; sharing intellectual properties; or aligning marketing and sales initiatives, talent and expertise.
Economies of scale can provide cost synergies and consolidation of operations to further streamline operations and eliminate redundancies by integrating the acquired business unit into the buyer’s existing structure.
Joint ventures
Companies may participate in joint ventures to access scale, new markets or unique technology or to share risks. Considering the ownership structure and synergy implications of a JV model, both seller and buyer organizations will be focused on the long-term trajectory and success.
The buyer likely identified certain commercial and product development needs that are more challenging or will require more time and effort. In a JV model, both companies can enjoy better sales and distribution, larger market and customer base, lower cost via economies of scale and potentially reduced competition, essentially reaping the best of both worlds.
As the seller enters into the JV agreement, it will need to evaluate the operating model of the business and level of entanglement with the rest of the organization.
The spin-off
Both DivestCo and RemainCo need to operate as stand-alone companies, though the two companies will likely share some common customers. Streamlining handoffs between DivestCo’s and RemainCo’s account teams is vital to minimize customer disruption. Key customer and supplier relationships need to be assessed, especially as some will still be served by or support both entities.
The commercial strategy leaders at each organization need to clearly define and articulate any new business focus and strategy as they will likely operate in different sectors with new competitors, customers, value drivers, scale, market dynamics and multipliers. Talent decisions may need to be carefully thought through as employees are allocated between the two entities; talent flight is a key concern. Enhancing the sales force and aligning key sales KPIs will support their new operating environments.