How Demergers Unlock Value
Demergers: How They Add Value
Demergers are a strategic move that companies can make to realign their focus, increase profitability, or satisfy shareholders. They are complex transactions that require careful planning and precision. As merger and acquisition activities continue to grow, demergers are becoming more common globally.
In this article, we’ll dive into the key issues and market considerations necessary for a successful demerger. We’ll also share insights from our experiences helping top brands unlock significant value from their portfolios in different regions.
Three Key Takeaways
1. **Structure:** Every demerger is unique, so it’s crucial to understand the objectives for the company and shareholders. Tailoring the deal to meet these aims is essential.
2. **Readiness for Listing:** Ensure that the entity being demerged is prepared for life as a listed company from day one. It’s also vital to communicate the equity story effectively to the market.
3. **Separation:** Planning and executing the operational transition during a demerger require careful coordination, especially across different jurisdictions.
Assess Your Strategic Options
When it comes to demergers, it’s important to explore various paths before committing to one. Companies often run dual-track processes or maintain flexibility to switch strategies as market conditions evolve. By considering different structures early on and continually evaluating the best path, management and shareholders can gain confidence in their chosen strategy.
Three Demerger Structures
1. **Demerger:** This structure allows for a full separation of businesses on day one. Existing shareholders can benefit from the growth in share prices of both groups.
2. **Minority IPO:** In this structure, there is no immediate “clean break,” but existing shareholders can monetize their stake over time.
3. **Sale:** This structure involves selling the business without going through a listing process. It can be a quicker process but requires a willing buyer.
Getting it Right: Key Issues in Demergers
1. **Tax:** Addressing tax considerations early on is crucial. It’s essential to understand the tax impact on shareholders, the demerged entity, and the retained group.
2. **Structuring:** The parent company’s objective determines the chosen structure. Consider whether the parent wants to fully demerge, monetize part of its interest, or retain a stake.
3. **Documents and Listing Process:** Prepare for the disclosure process by creating a comprehensive prospectus. Engage internal teams, accountants, and advisers early on in the process.
4. **Separation:** Ensuring a smooth break-up requires careful planning. Consider any pre-spin reorganizations needed and plan for operational transitions.
In conclusion, demergers can unlock significant value for companies when executed successfully. By understanding the key considerations and market factors involved, companies can navigate the complexities of demergers and achieve their strategic goals.
