In 2023, Johnson & Johnson completed the separation of its consumer health division – the business that housed Neutrogena, Band-Aid and Listerine – into an independent, publicly traded company called Kenvue. The rationale was straightforward: J&J wanted to concentrate capital entirely on its higher-growth MedTech and pharmaceutical operations. The consumer division was profitable. It was well-run. It just wasn’t where J&J’s strategic future lay.
Philips made a similar move over a longer period, systematically exiting consumer electronics and domestic appliances to focus on medical technology and health services. Unilever has sold its food brands – including the separation of its ice cream division and the announced sale of its remaining food business to McCormick – to sharpen focus on personal care and homecare. Alphabet has launched and wound down a wide range of products and ventures over the years, keeping capital concentrated on the operations that align with its overall strategy.
These are not stories of failure or retreat. They are examples of deliberate portfolio management by businesses that decided what they are and what they are not – and then acted on that decision.
Divestment as a strategic tool
The instinct in most businesses is to hold. Assets that have been built or acquired come with sunk cost, organisational identity and internal champions. The default is to keep investing and wait for performance to improve.
But holding has costs too. A business unit that no longer fits the strategy consumes management time, capital and organisational attention that could be redeployed elsewhere. In many cases, the unit would perform better under different ownership – a buyer for whom it is core rather than peripheral, and who will invest in it accordingly.
Divestment, approached proactively, is a way of releasing that trapped value. It frees up capital for redeployment into higher-growth areas. It simplifies the business operationally and strategically. And it often unlocks a better outcome for the divested unit itself.
When does divestment make sense?
There are four situations in which divestment typically warrants serious consideration:
- First, a business unit that no longer fits the core strategy – either because the strategy has evolved, or because the unit was acquired for reasons that no longer apply.
- Second, an asset that is consuming investment disproportionate to its returns: a unit that needs ongoing capital to maintain its position but is not generating sufficient return to justify that spend.
- Third, a division that would perform better under different ownership – where the asset has real value but the current owner is not the right owner to maximise it.
- Fourth, capital that is tied up in an underperforming or non-core asset when there are higher-return opportunities available elsewhere in the portfolio.
There is an important distinction between strategic divestment and distress divestment. Strategic divestment is a choice made from a position of strength, with time to prepare properly and the leverage to negotiate a fair price. Distress divestment is a forced sale, typically at a discount, driven by financial pressure. The timing, the preparation and the outcome are completely different.
Businesses that divestiture proactively, before performance deteriorates, almost always achieve better outcomes than those that wait until the situation forces their hand.
Private equity sets an example
For private equity-backed businesses, divestment is a normal part of the portfolio lifecycle rather than an exceptional event. Decisions made at acquisition about what to keep and what to sell are regularly revisited as the value creation plan develops. A business that looked like a coherent whole at entry may contain divisions that are better separated and sold to different buyers at exit – either because they have distinct buyer pools, distinct growth profiles, or because separating them maximises the combined value.
This discipline – regularly asking which assets belong in the portfolio and which would be worth more elsewhere – is one that corporate businesses can apply without the PE ownership structure, but rarely do with the same rigour.
How to approach a divestment
Getting a divestment right requires structured preparation across three areas.
Identify non-core units with rigour. The question to answer is: given where this business is trying to go, which assets are genuinely core to that strategy and which are not? This needs to be driven by the strategy, not by sentiment, incumbency or the preferences of the unit’s leadership team. It requires honest assessment of fit, not just historical contribution.
Value the asset honestly. What is it worth to a buyer – not what it cost to build or acquire, and not what the internal P&L shows, but what a well-informed acquirer would pay given the unit’s cash flows, growth prospects and strategic value to them. Book value is often a poor guide to market value. Commissioning an independent assessment is usually worthwhile.
Do the work to prepare the business unit for sale. This means clean, clearly presented financials; a stable management team; a clear narrative about what the business does and why it is attractive; and a well-articulated view of the growth opportunities available to a new owner. Buyers pay more for businesses they can understand quickly, and where the growth case is credible and documented rather than vague.
Common mistakes to avoid
Under-preparing the asset is probably the most common error: going to market before the unit is in a condition to show well, and therefore achieving a lower price or failing to attract credible buyers.
Misreading buyer appetite is another – overestimating who will want the asset and at what price, often because internal stakeholders are too close to the business to assess it objectively.
Finally, confusing book value with market value leads to price expectations that make a transaction difficult to complete.
At White Space Strategy, we help businesses identify which assets belong in their portfolio and which would release more value elsewhere – and support the analytical and strategic work needed to prepare for a transaction. If you are considering a divestment or rationalising your portfolio, get in touch.
Latest White Space Insights:
Sales Excellence in B2B: Tools and Practices to Boost Performance
