What Is a Divestiture?

A divestiture occurs when a company sells, spins off, or disposes of a portion of its business assets, such as a subsidiary, division, or product line, to streamline operations or raise capital.

The decision to divest often stems from strategic business objectives that shape a company’s future direction. Companies might choose to separate from underperforming units or non-core business segments to focus on their primary strengths and market position.

In the context of mergers and acquisitions (M&A), divestitures represent a crucial corporate restructuring tool. Organizations can use this strategy to satisfy regulatory requirements, reduce debt, or realign their business portfolio with long-term growth objectives.

The process typically involves careful evaluation of the business unit’s value, market conditions, and potential buyers. A successful divestiture requires thorough planning and consideration of various stakeholders, including employees, customers, and shareholders.

This strategic move can benefit both the parent company and the divested unit. The parent company often experiences improved financial performance and operational efficiency, while the separated entity gains independence to pursue its own growth trajectory.

Primary types of divestitures

A recent analysis reveals that nearly half (48%) of dealmakers are considering divestitures or carve-outs, having completed at least one such transaction in the past 12-24 months. The global divestiture landscape continues to evolve, with carve-outs becoming increasingly popular as a strategic tool for companies seeking to unlock value.

• Sell-off. A sell-off involves directly selling a business unit or division to another company in exchange for cash proceeds. This straightforward transaction allows the parent company to quickly monetize assets while maintaining its core business structure.
• Spin-off. In a spin-off, a parent company creates a new, independent entity by distributing shares of the new company to existing shareholders. The new company operates independently with its own management team and Board of Directors, while the parent company continues to exist as a separate entity.
• Equity carve-out. An equity carve-out occurs when a parent company sells a minority stake in its subsidiary through an IPO while maintaining majority control. This strategy allows companies to raise capital and establish a market value for the subsidiary while retaining strategic control of operations.
• Split-off. In a split-off transaction, shareholders choose whether to keep their shares in the parent company or exchange them for shares in the new entity. This differs from a spin-off in that shareholders are given the option to select their investment preference rather than automatically receiving shares in both companies.
• Asset sale. An asset sale involves the direct transfer of specific assets, such as equipment, property, or intellectual property, rather than an entire business unit. This targeted approach allows companies to selectively dispose of non-core assets while retaining the organizational structure of their business units.

Notable examples of divestitures

Over the past decade, divestitures have reshaped major corporations and entire industries. These strategic moves demonstrate how companies adapt to changing market dynamics and create value through corporate restructuring.

High-profile corporate divestitures

PayPal’s separation from eBay in 2015 stands as a landmark example of strategic divestiture. The split allowed PayPal to pursue partnerships with other e-commerce platforms while maintaining eBay as a significant partner. “eBay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets,” stated John Donahoe, then-CEO of eBay.

General Electric’s transformation exemplifies a comprehensive divestiture strategy. In 2024, GE completed its final phase of restructuring by splitting into two distinct entities: GE Aerospace and GE Vernova. This marked the culmination of a strategic journey that included selling its aircraft leasing unit for $31.2 billion and divesting various other businesses to reduce debt and enhance operational focus.

The Pfizer-GlaxoSmithKline consumer healthcare joint venture in 2019 represents a strategic divestiture through partnership. The deal created the world’s largest over-the-counter business, with Pfizer maintaining a 32% stake and GSK holding 68%. “The successful closing of the joint venture represents an important and exciting step in forming a world-class pure-play consumer healthcare business,” noted Albert Bourla, Pfizer’s CEO.

Industry-specific divestitures

In the technology sector, companies are increasingly viewing divestitures as opportunities to modernize their IT infrastructure and address aging systems. Nearly 40% of venture capital funding in cloud firms is now directed toward generative AI startups, prompting traditional tech companies to divest non-core assets and realign their portfolios.

The pharmaceutical industry continues to leverage divestitures for portfolio optimization. Recent analysis shows that large pharmaceutical companies are trimming their focus areas, with companies like Roche announcing plans to concentrate on just 11 disease areas to strengthen their market position.

In financial services, 2024 witnessed significant divestiture activity, particularly in the payments sector. Major financial institutions pursued strategic separations to enhance competitiveness and meet regulatory requirements. For instance, in a 2025 report, Barclays Bank explored selling its merchant acquiring business, while FIS divested its majority stake in Worldpay Merchant Solutions to streamline operations.

Common reasons for divestiture

As highlighted in Deloitte’s latest Global Corporate Divestiture Survey, M&A trends reveal that nearly 80% of companies surveyed anticipate executing three or more divestitures in the next year and a half. This surge in divestiture activity demonstrates the increasing strategic importance of portfolio optimization and reflects various motivations driving companies to reshape them.

Financial optimization

Companies often pursue divestitures to generate cash for debt reduction or strategic reinvestment without incurring additional financial obligations. This approach proves particularly valuable during periods of market uncertainty or when traditional funding sources become less accessible, making it a crucial tool for managing international acquisition risks.

Regulatory compliance

Regulatory authorities may mandate divestitures to prevent monopolistic market conditions and maintain fair competition. Companies involved in M&A activities frequently need to divest certain business units to secure regulatory approval and mitigate M&A risks.

Merger-related adjustments

Post-merger integration often requires selling redundant or overlapping business units to streamline operations and achieve synergies. Companies may also divest assets to satisfy regulatory requirements or optimize their combined portfolio structure.

Shareholder value enhancement

Divestitures can unlock hidden value by separating businesses that may perform better independently. This strategy often leads to improved market valuations and enhanced operational efficiency for both the parent company and the divested unit.

Strategic realignment

Organizations divest non-core assets to sharpen their focus on primary business operations and high-growth opportunities. A recent analysis shows that through the first half of 2024, divestiture transaction volumes increased by 39.7% year-over-year, with divestitures making up 24.5% of total M&A activity.

This trend is particularly evident in industries undergoing digital transformation, where companies need to adapt quickly to technological disruption and shifting market dynamics.

Market landscape changes

The evolving business environment, including technological disruption and shifting consumer preferences, can trigger companies to divest units that no longer align with their strategic vision. This adaptability helps organizations remain competitive in rapidly changing markets.

What is a divestiture strategy?

A divestiture strategy is a comprehensive plan that outlines how a company will separate from specific business units or assets while maximizing value and maintaining operational stability. A well-executed strategy requires careful planning, precise timing, and clear communication with all stakeholders.

Key elements of a divestiture strategy

Frictionless divestitures require several critical components to work in harmony. Each element plays a vital role in ensuring a smooth transition and optimal outcome for all parties involved.

• Portfolio analysis. The first step involves a thorough evaluation of the company’s business portfolio to identify potential divestiture candidates. This assessment examines factors such as market position, growth potential, and strategic fit with the core business mission.
• Valuation and financial planning. A detailed financial analysis determines the fair market value of assets and potential return on divestment. The importance of accurate valuations is highlighted by current market dynamics—in 2024, global M&A deal value increased 8% to US$3.4 trillion, and large-scale transactions valued at US$2 billion or more increased by 20% compared to the previous year.
• Buyer identification. The strategy must include a systematic approach to identifying and evaluating potential buyers or strategic partners. This process involves market research, competitor analysis, and assessment of buyer synergies to maximize transaction value.
• Timeline development. Strategic timing can significantly impact divestiture success. When planning the execution timeline, companies must consider market conditions, industry cycles, and internal readiness.

Managing divestiture challenges

While divestitures offer significant opportunities to create value, they also present complex challenges that require careful management and strategic planning.

• Operational continuity. Maintaining business momentum during the separation process requires careful planning and coordination. Companies must establish clear transition service agreements (TSAs) and operational protocols to ensure smooth operations throughout the divestiture process.
• Employee engagement. Understanding and addressing employee concerns during M&A is crucial for maintaining workforce stability. According to a Mercer survey, 73% of employees consider communications during M&A to be essential for reducing anxiety and uncertainty. Clear communication about future roles, opportunities, and transition plans helps maintain productivity and morale.
• Regulatory compliance. Organizations must navigate complex legal and regulatory requirements across different jurisdictions. A robust compliance framework ensures all necessary approvals and documentation are obtained while minimizing legal risks.
• Stakeholder communication. Effective stakeholder management requires a coordinated communication strategy that addresses the concerns of investors, employees, customers, and business partners. Regular updates and transparent dialogue help maintain confidence throughout the divestiture process.

Divestiture planning

A successful divestiture requires meticulous planning and coordinated execution across multiple stakeholders. Here are the fundamental steps involved in a divestiture plan.

1. Identify the business unit for divestiture. The process begins with a comprehensive portfolio review to identify underperforming or non-core business units. This assessment examines factors such as market position, growth potential, and strategic fit with the company’s core mission.
2. Conduct a business valuation. A thorough financial analysis determines the fair market value of assets and potential return on divestment. This step involves reviewing financial statements and market conditions and engaging business valuation specialists to establish a realistic asking price.
3. Develop a transaction structure. Based on a company’s strategic objectives, it must choose between various divestiture types, such as outright sale, spin-off, or carve-out. Each structure has distinct implications for taxation, regulatory requirements, and stakeholder interests.
4. Find buyers or investors. The company must develop a systematic approach to identifying and evaluating potential buyers or strategic partners. This process involves market research, competitor analysis, and assessment of buyer synergies to maximize transaction value.
5. Regulatory and compliance review. Organizations must navigate complex legal and regulatory requirements across different jurisdictions. A solid compliance framework ensures all necessary approvals and documentation are obtained while minimizing legal risks.
6. Negotiate terms and finalize agreements. Deal teams must draft comprehensive purchase agreements covering price, payment terms, representations, warranties, and closing conditions. TSAs may be necessary to ensure operational continuity during the transition period.
7. Employee and stakeholder transition. Clear communication about future roles, opportunities, and transition plans helps maintain productivity and morale. Companies must establish clear protocols for transferring employees, administering benefits, and maintaining business momentum throughout the separation process.
8. Post-divestiture integration or separation. The final phase involves implementing separation plans, transferring assets, and establishing new operational protocols. Companies must carefully unravel cross-company systems and processes while ensuring the effective separation of shared resources.

Streamline workforce operations amid corporate restructuring

Fruitful divestitures require strategic guidance and support, particularly when managing global workforce transitions. Velocity Global’s comprehensive solutions streamline the complexities of international employee transfers and ensure the seamless continuation of operations during corporate restructuring. With expertise in managing global teams across 185+ countries and tools designed specifically for workforce transitions, Velocity Global helps organizations maintain productivity and employee satisfaction throughout the divestiture process. Get in touch to learn more.