Cool Tools for Turning a Loss Into a Win With Divestitures

Divestitures of off-strategy businesses, particularly sub-scale ones, are usually viewed as a failure. Corporates don’t buy to sell. They buy to grow. But there are often ways to pull success from the jaw of defeat. Here are a few:

Ongoing licenses. By licensing the buyer your technology or data to allow them to run and grow the business you can create a stream of 100% (or close) margin revenue. If they are able to grow the business, you will have a nice stream of benefit from that growth.
Manage the messaging. Positioning the sale of a business can be valuable to your core. You can message this as a refinement of focus on the future of the company (moving away from dumb data to AI driven insights, etc.). With the right buyer you can even position this as a partnership rather than a sale – bringing on a partner to help enhance an offering that is not as core to your future but yielding even better results for your clients.
Optimize the TSA. Instead of leaving it to the buyer to ask for what they need in a Transition Services Agreement, you can structure it to meet your needs. You might want the TSA to extend for a while to give you time to right-size the associated enabling areas or even grow into them by the time the TSA ends. The TSA is also a source of high margin revenue particularly if the resources being purchase are already sunk costs.
Reseller agreements. You’ve likely got your core sales organization trained to sell this offering. If it’s not proving to be a distraction to them, you can maintain a nice high margin revenue stream through a reseller agreement with the buyer. The buyer will likely be overjoyed to have access to your sales organization (unless they’re a competitor or have a fairly massive sales capability of their own).
Non-competes and ring-fencing competitors. Just because the asset is off strategy to you does not mean that you want your direct competitors to have access to the asset. Many buyers – particularly financial buyers – will be willing to ring fence selected competitors and agree not to sell through them or even sell the asset to them for a period of time.
Rights of first refusal. If you think, there’s some chance you will want to re-acquire the asset this is your opportunity to put yourself in the pole position.
Non-solicits or the opposite. You can protect yourself from poaching through a non-solicit from the buyer. Or if you want to minimize the cost of severance or the drag of underutilized employees you can structure the deal to make sure the buyer takes all the employees that you won’t need.
Speed and ease of execution. Not quite a benefit but demanding this from a buyer will minimize distraction to you and the divesting business.