Must see inside! During divestitures, sellers increasingly perform their own HR due diligence to put people assets in the best light and get the best price

HR Magazine, Sept, 2004 by Robert J. Grossman

Felsher's experience is not uncommon. Frederickson estimates today's acquisitions wind up as tomorrow's divestitures, going sour around half the time.

HR Input Is Critical

Whatever the outcome, in the end, unless HR has strategic input in all three phases of the divestiture process---pre-shopping, shopping and shoring-up--critical perspectives will be lacking. The wisdom of proceeding with the divestiture may not be fully explored; profit potential is unlikely to be fully realized; critical people issues may suffer from lack of attention and focus.

Even when HR is in on the ground floor, it has to have its priorities straight. "HR walks a tightrope," Bowers says. "You have to look at protecting people, which is important, but you also have to be thinking about enhancing the value for your employer and making the deal truly attractive for the buyer."

RELATED ARTICLE: Divestitures on the Rise

Although precise data are not available, divestitures number in the thousands annually, occurring with regularity and increasing in frequency, according to Ross Zimmerman, senior consultant at Hewitt Associates in Lincolnshire, III., a consulting firm that handles mergers, acquisitions and divestitures.

"When you look at any recording of top [mergers and acquisitions] deals, 30 percent to 40 percent will include a divestiture," he says. "Odds are the bigger your company, the more you'll see divestitures down the road."

When KPMG surveyed Fortune 1,000 company decision-makers in 2002, 73 percent predicted that the annual number of corporate divestitures would increase over the next five years. Usually the driving force in divestitures is finance-related. Either the divestiture target is losing money, not earning enough, or it's a prize asset sold to raise cash for new ventures or to stay afloat.

Increasingly, though, the primary reason is strategic: The company decides the division no longer fits with its core business, such as when PepsiCo pulled out of fast-food restaurants by selling Pizza Hut and KFC.

ROBERT J. GROSSMAN, A CONTRIBUTING EDITOR OF HR MAGAZINE, IS A LAWYER AND A PROFESSOR OF MANAGEMENT STUDIES AT MARIST COLLEGE IN POUGHKEEPSIE, N.Y.