Divestment is the process of eliminating assets from an organization. There are many reasons for doing so, including the following:
- Assets are underperforming, so they are sold to generate cash for investment in more promising opportunities.
- Regulators mandate that a company sell off certain subsidiaries; this is most common in a heavily controlled industry.
- Assets relating to peripheral areas are sold, so that management can concentrate its efforts on the organization’s core activities.
- Prime assets are sold in order to make the business look less valuable to a corporate raider.
- Assets are sold in order to raise cash to pay down debt, thereby giving the business a more conservative financial profile.
Some divestments take the form of spin-offs, where subsidiaries are set up as separate enterprises that are owned by the former parent company’s investors. Spin-offs do not result in any cash inflow to the former parent company.