Planning for Successful Divestitures

When thinking about merger and acquisition strategies, we naturally focus on the details associated with acquiring a new business but often forget about the importance of having a solid plan when selling or divesting a business.

As part of our divestiture planning process, we work with the seller to prepare a comprehensive report for prospective buyers, identifying opportunities for securing significant future labor cost savings and productivity improvements and helping to establish a higher company valuation and purchase price.

• Heighten Buyer Interest - A key variable in a buyer’s decision to purchase a new business is their assessment of the current and projected labor costs, along with their ability to effectively manage the workforce. Operations with a solid plan to improve productivity will generate significantly more interest than those with rigid work rules, inefficient practices, or restrictive labor agreements.
• Increase Purchase Price - While each business and transaction is unique, a well-managed divestiture can often reduce operational costs by 10 to 20 percent. Our team of experienced professionals works with local management to carefully document areas of potential future savings for the buyer, providing the seller with valuable leverage to secure a higher price for the business.
• Develop Action Plans - To capitalize on the opportunities for lowering costs and improving productivity, we can assist the buyer to develop an action plan to implement key changes prior to or shortly after closing. Also, if there is a union present, our union relations consultant can facilitate discussions with senior union leadership regarding a new labor agreement in advance of closing.

Divestitures Provide a Unique Opportunity to Implement Change

Help Ensure Future Success and Enhance Employee Job Security

Like most people, employees often view change as a negative and resist departures from current practices. Therefore, it is important to develop communications that explain how future changes will help position the business for success, why they are necessary, and how they will help to improve job security.

While every business is different, here are a few of the opportunities that should be explored when contemplating a change of ownership:

(1) Simplify work rules and labor agreements to create a more flexible and productive work environment.

(2) Expand employees' scope of work.

(3) Outsource non-value added jobs.

(4) Meet with groups of employees to seek out their ideas for improvement.

(5) Evaluate the need for employee training programs.

(6) Eliminate or restructure outdated benefit plans.

(7) consider establishing two-tier wage and benefit structures that protect long service employees while ensuring competitive labor rates for new hires.

Identify and Secure Valuable Government Economic Incentives

It is also helpful for the seller to understand what types of types of government economic incentives the buyer might be eligible for at the federal, state, and local level, and calculate the financial impact to provide the seller with additional leverage during their sales negotiation. It is critical that incentives are negotiated in advance of the sale in order to maximize value.

Hutchison Group Can Help

Prepare Comprehensive Analysis and Action Plans

To help ensure that the company successfully leverages potential labor cost savings and other improvements with prospective buyers, our labor relations consultants can conduct a comprehensive analysis and prepare a formal report that can be shared with potential buyers. In addition, the report will include specific recommendations and process methodologies as to how the cited improvements can best be secured and implemented.

Reassure the Board of Directors and Shareholders

As an added benefit, the actions outlined above can help reassure the Board of Directors and Shareholders that management has been diligent to secure the best possible price for the sale of their business, helping to positively impact both company valuation and share price.