HR in Divestiture
Acts as go-between from the business unit that is getting sold, the corporate subject matters experts that have information regarding that business, the legal team that is working through the due diligence process and the corporate development team that is working with the buyers on a potential transaction.
HR’s contribution includes:
– Advising corporate development team on employment law requirements (e.g. information and consultation of employee representative bodies, approval by
government agency or regulatory body, transfer of undertakings);
– Identifying and ring-fencing all employees affected by the planned transaction and clarifying employing entity/entities and terms and conditions of employment;
– Providing input on potential retention programmes for key talent in both the business unit to be sold and the rest of the organisation;
– Preparing information for data room in a format that protects employees’ privacy and confidentiality;
– Auditing pay, benefits and other dependencies and planning carve-out so that they can function without the help of corporate support services;
– Conducting any necessary information and consultation processes with relevant employee representative bodies;
– Helping plan and draft communication for all internal (management and employees of business unit being sold and remaining organisation) and external
stakeholders (partners, government agencies, regulatory bodies as appropriate);
– Collaborating with business development team and other subject matter experts on drafting deal documentation (memorandum of understanding, letter of intent, purchasing agreement, transition service agreements if applicable).
Divestitures often fail due lack of in house knowledge and lack of resources
Analysis of 100 major divestitures (value over USD500M) completed over 25 years (1992 – 2017) and found that only 29% of transactions experienced win-win scenarios in which both the parent company and the divested business achieved TRS in excess of their peers several years after the separation: this means that 71% of deals do not deliver the hoped for value.
“even if a company has extensive experience in managing mergers, it might not be able to execute separations efficiently… The skills required in divestitures are different enough from those used in M&A that even the most sophisticated acquirers often have difficulty contending with complex separation issues.”