John Rodgers, Jim Kane, and Jenny Halim highlight the importance of careful planning to minimize disruption and maximize retained value when managing strategic divestitures of entangled assets in this Insurance Thought Leadership article.
The financial services sector currently accounts for about 10% of all deals and is experiencing positive momentum. Throughout 2023, the industry has maintained a consistent level of deal activity and has demonstrated year-over-year growth in both deal value and deal count. There is still a pressing need for organizations to improve their divestiture processes – in both selection and execution.
Complexities of Divesting Entangled Entities
When looking at a business through the lens of a divestiture, an asset can often be thought of in one of two ways: Either it is largely independent from the parent company, or it is dependent on infrastructure owned by the parent. The latter scenario, commonly referred to as “entangled,” presents additional complexities regarding how to effectively separate during a divestiture.
“Entangled” is an umbrella term that can describe many relationships between the parent and the division being sold. These two parties might be connected by the labor they employ or by the infrastructure they use. The entanglements that are easiest to manage are relationships with third parties where the master agreement sits with the parent company but the purchase orders or statements of work specific to the entity being divested are straightforward. On the other end, time-intensive and difficult-to-manage entities are tethered to their parent companies by IT applications and infrastructure. In these cases, program management resources that can coordinate between different functions and subject matter experts within each function are crucial.
The degree of entanglement also affects compliance considerations that must be made when selling an asset that has previously been dependent on the parent company. These considerations will hinge on the size of the deal and the degree to which the industry in question is regulated. For insurance specifically, parent companies need to inform numerous regulatory organizations at both federal and state levels, while also completing an approval process for some aspects of the divestiture. Regardless of the industry of the seller, the parent company also must be compliant with employment laws when managing workforce reductions or as employees are moved to the new owner.
