Intentional Growth #344: What are Corporate Divestitures, How Do They Work, and Why Do They Happen? with John Waller
If you have been listening to the show for a while now, you know we are constantly talking about how to view–and run–a business like a financial asset.
Bigger corporations typically have this mentality baked into their day-to-day lives and are laser focused on growing their share prices, and the executives' goals are to drive that share price up. Sometimes the best way to drive up the long-term share price is to divest of a weak product line, floundering business unit, or underperforming location in order to make room for profitable long-term growth.
Today, I have John Walker from Prairie Capital Advisors on the show to share with us how the world of corporate divestitures works. John has been in the industry helping bigger companies sell off (divest) business units for decades.
John walks us through how bigger corporations view value, why they would want to sell a division/unit/product line, and how they view the valuation during the sale. John does a great job explaining what drives the sale (“the purpose of the deal” as you hear me say a lot) and how that impacts the price that is paid.
Understanding the M&A activity, especially within your industry, is a hugely important topic for a few reasons. First off, many of us middle-market entrepreneurs work with bigger companies (suppliers, manufacturers, distributors, customers, vendors, etc.), and it is important to understand what is going on behind the scenes and how a corporate divestiture could impact your relationship and the business you do with that company.
Secondly, there could be an opportunity to capitalize on a corporate divestiture in your industry–or an adjacent one–that could take your company and valuation to a level that would not have been possible otherwise. And you never know…the seller just might not care about the price ;-) You will have to tune in to the episode to hear that part of the story!
I hope you enjoy this interview with John. It’s a great view into a world most of us don’t often get exposed to!
What You Will Learn
- How bigger companies manage their products and divisions like a mutual fund.
- Why a bigger company would sell a part of their business and not care what price they sell it for.
- What corporate divestitures are and why they are a normal business practice.
- Why a business owner would consider doing a corporate divestiture.
- The different reasons a company would sell off a product line, division, or location.
- Why it’s important to understand the intentions of a buyer.
- Who the different types of buyers are when a company divests of one of their companies.
- What corporate divestitures mean for the middle-market entrepreneur.
- John's outlook for the future of corporate divestitures in the current market.
// USE YOUR FINANCIALS TO CLARIFY A PATH TOWARDS A MORE VALUABLE BUSINESS: Intentional Growth Financial Assessment
Bio:
John Waller joined Prairie Capital Advisors in 2021 with over 30 years of investment banking experience and 25 years advising middle-market companies on the sale and acquisition of entire businesses and business units. At Prairie, John leads and co-leads transaction teams and develops business for the firm. As a trusted advisor to privately-held companies and large corporations, John works to understand a client’s business, develops various transaction alternatives, and presents multiple options to the client. He then navigates clients through ownership transitions, corporate divestitures, and special situations. John is deeply involved in all aspects of transactions including managing the preparation process, contacting and meeting with potential acquirers or targets, and structuring, negotiating and completing a transaction.
Interview Quotes:
14:20 - “Companies are having these discussions all the time, about what they should sell and not. I hope they are but I fear that many of them are not.” - John Waller
14:43 - “Companies that do have those discussions and are frequently, as I say, fine-tuning their portfolio of assets, those companies outperform other businesses.” - John Waller
15:29 - “It’s the little ones moving their portfolio back and forth all the time that tend to do really well.” - John Waller
24:43 - “You have this intrinsic financial value [of the business] but then, depending on who is owning it and running it, they can do different things which will make more sense for each individual owner.” - Ryan Tansom
25:45 - “There might be an opportunity for a privately held business to be at the buyer table.” - Ryan Tansom
28:13 - “Even more importantly, or maybe as importantly, private equity firms have realized over the last few decades that they’re not going to make money through financial engineering and they’re not going to make money by just cutting expenses.” - John Waller
35:18 - “Never forget it’s people that are making these decisions.” - John Waller
39:10 - “It’s important to know what the people (looking to make the decision) are looking for.” - John Waller
44:48 - “I would like to think corporations would increase the diversification of their portfolio of assets.” - John Waller
48:29 - “Half of your advertisement is useless, the other half is great. You just don’t know which is which.” - John Waller
Links and Resources:
Intentional Growth™ Vision Board
Intentional Growth™ Online Training
Reach out to me if you have questions about the Intentional Growth™ Training or Fractional CFO services