Summary
When selling a part of the business, the strategy that dictates this action should be either profitability or focus on core products. Another factor in the sale is who is the buying audience.
Without taking these 3 factors into accounts, the sale make come back to haunt the seller one day.
Analysis
Most of my time is researching the VC market to see who is investing in what markets. Occasionally I come across a company selling part of their business. This is not really the VC market unless it’s a VC firm buying the segment. This brings up a good question, “what is the strategy behind selling part of the company?”
I have been on the sell-side four times, of which two would be considered divesting part of the company. In both cases, private equity firms bought the segment. This allowed the holding company to focus on the business at hand and shed a part of the company that was either not profitable or not part of the core business. From a seller’s viewpoint, these should be the only reasons to divest. If the business unit is related to other core products, however, the holding company must determine who they are willing to sell to. Certainly not a competitor, and not to a buyer that could one day come back and compete with other areas of your business.
Because GE is so intertwined with various markets, it’s difficult to determine if this unit complements other areas of the company. The fact that other conglomerates like Tyco International and United Technologies are looking to buy this part of the business raises red flags. If the sale goes through, GE needs to be confident that no corporate secrets are going sold along with the business unit.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
