A Divestment Success Story – How a simple idea delivered a $20m sale premium

A Divestment Success Story – How a simple idea delivered a $20m sale premium

“Humans think in stories rather than facts, numbers or equations, and the simpler the story, the better.”  Yuval Noah Harari (2016). 

This quote reminded me, that telling and listening to stories is very much part of who we are. Stories exist in both our personal lives and in business. In the world of M&A there are plenty of battle-hardened industry veterans who have more than a few stories to tell.  

I have a story from my own war-chest. It’s a good story; a simple one too. For me it nicely illustrates how little things can yield big results. 

Here goes… 

Around 12 years ago I was called in to help carve-out a financial services business. As is often the case, this business was no longer strategic, so the board decided to sell. The board and executives understood that a successful sale would require time, resources and plenty of planning.  

I went ahead and established the governance and management disciplines early in the process. Carving out the business was a complex exercise as it was deeply integrated with the parent. But thanks to a great team of people, the exercise was going well.  

The upshot of this early carve-out work  allowed potential buyers to see what they were going to get, and be comfortable in the knowledge they could take it over as a going concern.  

Unfortunately, the first offers were below expectations.  

“Was the business overvalued?” 

“Maybe the bid process isn’t competitive enough?”  

There were plenty of questions. The executive team and corporate advisors rightfully felt more pressure could be applied to the sales process. 

So while the deal team was busy upping the ante on the sales process, I had a chat with the staff and managers about how they felt about things. There was plenty of turmoil, both personal and professional. But one thing they lamented over was all the investment opportunities that went unfunded over the past years.  

“This is a good solid business but could be performing much much better” they said.   

“Why don’t we get hold of all of those old internal investment opportunities, dust them off and give them a new lease of life?”   

That’s what I suggested; from that, we started collecting various memos, documents and other artefacts that detailed the unfunded opportunities 

With the help of management and staff, we went ahead and crafted a number of buyer-specific value stories; supported by compelling and robust business cases. We wanted it to be strong and evidenced based – making sure there was a clear link between historical and forecasted operating results. With precision and care, we created a single document, put it in the dataroom and organised a series of management presentations. 

The presentations were polished, story-ladend, with plenty of facts and figures. This attracted a greater pool of buyers who began to see the business in a new light. Soon after,  the business was sold at the desired premium; $20M more than the previous high offer –  an almost 20% increase. 

It was a great result. We had our parties and said goodbye to the business and its staff, as it transitioned over to the new owners. The buyer was certainly happy. In fact, I switched over to the buyer side, and started work implementing the very opportunities I specified. 

As I said, it’s a simple story. For me it was gratifying to see how a little idea along with  small amount of effort, could deliver such a tremendous result.  

It also taught a simple lesson:  

When you are selling part of your company, don’t just sell a business provide the tools and vision on how to gain value from it.  

 

Regards 

 Toby 

toby.tester@btd.consulting