Why Do Firms Choose Divestiture?

Alfred Zaccagnino leverages over a decade of entrepreneurial experience to lead the Samarian Group, Ltd., a boutique financial services company providing advisory and consultation on a variety of corporate transactions. As president, Alfred Zaccagnino oversees the organization’s partnerships with corporations, foundations, endowments, and other financial entities, assisting such institutional clients with activities including asset divestiture.

Divestiture is a method of asset management that can assist a company in reducing or refocusing its portfolio. Achieved through the exchange, closure, or sale of assets, as well as via bankruptcy, divestiture occurs when a company either partially reduces or completely shuts down a specific business unit.

A firm’s management may choose to divest a portion of its assets or operations for a variety of reasons. Companies often carry out divestitures to free up financial resources for other business areas or to increase their profitability in general. They may also divest business units that fall outside of their core competency, or to get rid of redundant operations following a merger or acquisition. In some instances, divestiture can be the result of a court order. Court-ordered divestitures are generally aimed at increasing market competition and preventing the development of monopolies, as was the case in the breakup of the Bell System in 1982.

Upward Trend in Mergers and Acquisitions

As founding partner and president of the Samarian Group, Ltd., Alfred Zaccagnino leads the boutique investment firm in delivering a variety of financial services aimed at helping clients grow and preserve their wealth. Backed by partnerships with agents, broker dealers, and other financial organizations, Alfred Zaccagnino and his fellow executives offer corporate consultation on matters such as mergers and acquisitions.

As noted by leading financial professionals from Wall Street to Hong Kong, 2015 is likely to be the strongest year for mergers and acquisitions (M&A) since 2007. Although the number of M&A transactions in the first half of 2015 is similar to the amount observed during the first six months of 2014, the sizes of these deals continue to increase. As large firms seek to spur revenue and market share growth, the sector has seen a 42 percent increase in transactions exceeding $5 billion.

This ongoing consolidation has resulted in a faster-paced environment for mergers and acquisitions, as prospective buyers must act quickly to take advantage of limited M&A opportunities. According to experts such as Centerview Partners co-founder Blair Effron, this is especially true of the rapidly consolidating pharmaceutical and telecommunications sector. This upward M&A trend has also increased the likelihood of firms intervening in the transactions of rival corporations, attempting to make the most compelling offer in M&A efforts that are often the result of years of research and analysis.