Divestitures and the role of divisional top management

Abstract This paper addresses a gap in our knowledge on divestitures and the buying to sell strategies of private equity firms. There is dearth of research that focuses on the human side of divestitures, with limited... [ view full abstract ]

Abstract

This paper addresses a gap in our knowledge on divestitures and the buying to sell strategies of private equity firms. There is dearth of research that focuses on the human side of divestitures, with limited understanding of the divestiture process and the role of divisional top management teams (TMT). This paper addresses two research questions: What role do the divested TMT play in the divestiture of a business unit and under new ownership, what post-deal strategy is pursued by this team in the value creation process. To answer the research questions a single case study method was pursued covering a 5-year period, involving the divestiture of a MNC’s non-core business unit and subsequent acquisition by a private equity firm. Studies on the divestiture process are rare and studies of private equity firms who acquire divested business units even rarer therefore, this study is novel. A number of key findings emerged from the research which contributed to the achievement of a successful value creation strategy and included: a workforce differentiation strategy; a separation strategy being pursued by the private equity firm rather than an integration strategy and the role of the collective characteristics of the TMT. This research has practical implications in that the findings can be particularised to firms that are about to be divested and sold to private equity firms.

Keywords: Divestitures, buy-to-sell, exit strategy, top management team, private equity.