Divestment Strategy: Divestment strategy involves the sale or liquidation of a portion of business, or a major division, profit centre or SBU. Divestment is usually a part of rehabilitation or restructuring plan and is adopted when a turnaround has been attempted but has proved to be unsuccessful. The option of a turnaround may even be ignored if it is obvious that divestment is the only answer.
Reasons for Divestment Strategy
A divestment strategy may be adopted due to various reasons:
- Turnaround Failed– When a turnaround has been attempted but has proved to be unsuccessful.
- Unmatched Acquisition– Businesses that have been acquired proves to be a mismatch and cannot be integrated within the company.
- Unprofitable Product and Negative Cash Flow – Persistent negative cash flows from a particular business create financial problems for the whole company.
- Technology Upgradation– Technological upgradation is required if the business is to survive but where it is not possible for the firm to invest in it.
- Severe Competition – Severity of competition and the inability of a firm to cope with it.
- Better option to invest money after divesting or selling existing business.
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