Divestment

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.

  • Assets are sold in order to eliminate assets causing environmental damage; doing so may improve the profile of the business with stakeholders and environmental activists.

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.