
You already knew that divesting is not as easy as hammering a for sale sign into the ground and waiting around for offers. But you may not be aware that one of the most common mistakes executives make when divesting a subsidiary is not preparing financial statements for the sale, according to a report released by
Ernst & Young LLP. I recently spoke with Jeff Greene, Americas Leader For Sell-Side Advisory Services, Ernst & Young LLP to discuss how corporate dealmakers should plan for carve-outs and selloffs, which they increasingly wish to do in order to allot capital for
debt repayments, fill in gaps through acquisition or focus on
organic growth.
Financial statements are crucial to a smooth divestiture process, and executives should plan the work far in advance so they have enough time and resources to prepare SEC compliant documents. If they provide the right information to potential buyers, executives will have fewer questions to answer, more consistent information and control of the sales process, according to Greene. "Preparation preserves value. If the information isn't tied together consistently then it could lead to a lower price for the carve-out," Greene said.
Executives should be asking themselves these questions during their sell-side due diligence:
1. Are there any issues you have to address in the business before a sale?
2. Do I have the right resources and people who are working full-time on preparing these documents?
3. What bidders would my company have if it were to separate from the parent?
4. What would be the costs of the business to run on its own?
5. What is my timetable for a sale?
6. Am I being realistic about preparation and planning or are my goals too ambitious?
By answering these questions, executives should be able to have enough information for an investment banker to come up with a good range of prices. Consistent financial statements, Greene added, will drive the price up and make for a much smoother deal." --
Maria Woehr
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