"Remove the dross and keep the essence." - As the old saying goes, only by survival of the fittest can we move forward steadily. In the game of the capital market, the divestiture of assets by listed companies is often interpreted as "cutting off arms to survive" - cutting off loss-making businesses and concentrating resources on developing core advantages. However, the reality is not so simple. After "optimizing" assets, many companies found that profits did not increase as expected, and even suffered from damage to strategic layout, resulting in a decline in long-term competitiveness.
American Goheal M&A Group
Goheal observed that in recent years, many companies in the market have released short-term value through asset divestitures, but there are very few cases of truly doubling profits. So, is divesting assets a panacea for companies to go into battle lightly, or a misjudgment that may lead to "breaking bones"? How to make asset optimization an accelerator of growth rather than the starting point of recession?
The illusion of asset divestiture: reducing burden = increasing profits?
The logic of many companies when divesting assets is: sell unprofitable businesses, cut redundant costs, focus on core tracks, and thus increase profit margins. But the problem is that this seemingly reasonable idea often ignores the "synergy between assets". Although some businesses are not profitable in the short term, they may be a key link in the company's supply chain. Once they are cut off, the overall competitiveness may decline.
For example, a consumer electronics company once sold its OEM business, believing that its own brand was the core growth point. However, after divesting the OEM business, the company lost the scale effect, resulting in increased production costs and decreased profits. Similar cases are not uncommon in the capital market. This is exactly a core misunderstanding that Goheal found in previous research-divestiture does not equal profitability, and optimization is the key.
How to judge which assets should be "kept" and which should be "left"?
When companies optimize their assets, the most important thing is not to "cut off losses", but to find the part that really drags down overall growth. So, how to distinguish which assets should be retained and which should be divested? Goheal believes that it can be evaluated from the following dimensions:
1. The degree of synergy between assets and core businesses: If a business has long-term value to the company's core products, brands or supply chains, it may be worth keeping even if it loses money in the short term. For example, Amazon's AWS business, which has been losing money for a long time, eventually became its profit pillar.
2. Industry trends and market potential: Some businesses may be in a loss-making state at present, but if they are in line with the future trend of the industry, premature divestiture may miss long-term opportunities. For example, some companies in the new energy field invested heavily in research and development in the early stage, suffered short-term losses, but became industry leaders in the long run.
3. Capital occupation and financial burden: If a business has occupied a large amount of funds for a long time and has a low rate of return, affecting the company's overall capital efficiency, then divestiture may be a better solution.
In the process of asset optimization, some companies will adopt the method of "splitting and listing" or "selling to more suitable buyers" instead of simply shutting down. For example, eBay divested PayPal and allowed the latter to develop independently and eventually became a giant in the payment industry. This optimization method not only released business value, but also brought considerable returns to the parent company's shareholders.
After divesting assets, how can companies avoid "sequelae"?
After divesting assets, many companies find themselves in a new dilemma: the team structure is disrupted, the market competitiveness declines, the brand value is damaged... These "sequelae" are often due to insufficient planning during the divestiture process. Goheal summarized several key points that can help companies transition more smoothly after divestiture:
1. Make good strategic connections and avoid "faults" - after divesting assets, companies should have clear business adjustment plans to ensure that the core team, customer relationships and supply chain will not be overly impacted. For example, after divesting offline stores, a retail company quickly deployed online business to achieve a smooth transition.
2. Maintain financial stability and avoid "short-term good looks and long-term embarrassment" - some companies make short-term profits through asset sales, but if there is no corresponding long-term growth strategy, the market will soon find problems and cause stock prices to fall.
3. Pay attention to market signals to avoid investor misunderstandings - the market often has two extreme interpretations of asset divestitures: either it is considered "slimming down and saving oneself" or "strategic upgrades". After divesting, companies need to promptly convey clear information to the market to explain their long-term development plans, otherwise it may cause investor anxiety.
The response of the capital market: Can asset optimization really enhance shareholder value?
The improvement of shareholder value does not only depend on financial report data, but also involves the market's long-term expectations of the company. If a company can show a clearer strategy, more efficient operations and stronger competitiveness after asset divestiture, the stock price may really increase. For example, in recent years, some technology companies have won the favor of investors by divesting non-core businesses and focusing on high-growth tracks.
However, there are also failures in the market - some companies have lost market value after divestiture because their core businesses failed to keep up. For example, after a traditional manufacturing company sold its less profitable subsidiary, it found that the market was not optimistic about its remaining business, causing its stock price to fall all the way. This shows that divestiture itself is not a panacea. The key lies in whether it can take this opportunity to achieve real business optimization.
The ultimate goal of corporate asset optimization: to create a more competitive company
In the capital market, the purpose of asset divestiture is to enhance the long-term competitiveness of the company, rather than short-term "tinkering". If the company can maintain growth after divestiture and show stronger profitability, the market will naturally give positive feedback. Goheal suggested that when optimizing assets, companies should not only focus on immediate benefits, but also consider their long-term impact to ensure that every adjustment can make the company stronger, rather than just to cope with short-term challenges.
So, in your investment or business management experience, have you ever encountered profit fluctuations caused by asset divestiture? Which industries do you think are suitable for improving competitiveness through asset optimization? Welcome to leave a message in the comment area and discuss the latest trends in the capital market with Goheal!
Goheal Group
[About Goheal] Goheal is a leading investment holding company focusing on global mergers and acquisitions, focusing on the three core business areas of listed company control acquisition, listed company mergers and acquisitions and restructuring, and listed company capital operation. With its deep professional strength and rich experience, it provides enterprises with full life cycle services from mergers and acquisitions to restructuring and capital operation, aiming to maximize corporate value and achieve long-term benefit growth.
