Existing an Underperforming Business

Guide to Exiting an Underperforming or Non-Core Business


Exiting an Underperforming or Non-Core Business

Exiting an Underperforming or Non-Core Business for Corporates with businesses across Nigeria has become absolutely critical with businesses only just recovering from the losses that occurred during the pandemic, which in fact, resulted in the downfall of many Nigerian businesses; and considering the extremely volatile nature of the Nigerian Currency. Definitely this is a painful albeit necessary exercise for many companies, having spent time, energy, and finances in building the business. However, to ensure the process generates some returns and does not lead to casualties, it is crucial to strategically start and complete the exit process.

Adept advisory of the Brickstone Africa Team has been utilized in creating this White Paper, particularly targeting stakeholders who might be considering an exit decision or are interested in what it entails, as well as those already in the process of exiting their businesses. This White Paper sheds more light on what an exit decision is, and the reasons why corporations with Underperforming or Non-Core Business choose to have recourse to it. Furthermore, it explores the best blueprint to employ in executing an exit strategy. In addition, it mentions some limitations to achieving an exit strategy. Finally, it explains the important options available for the teams creating an exit strategy.

If simultaneously, a company with numerous subsidiaries or sub-businesses, faces the problem of profit making or revenue generation in some of those subsidiaries, which in turn, leads to a drawback for the company in general, or if those businesses are non-core or not generating expected or necessary return, it may be crucial to put those businesses through an exit process, by choosing to sell a unit of the business, or the whole business in general.

This White Paper discusses in much detail, the other reasons why management in Underperforming or Non-Core Businesses would choose to resort to an exit decision. While all of them are very economically oriented, and include that the business is nearing the end of its useful economic life; or as previously discussed, the business is loss making and there is a need to stem the group’s/ company’s losses; some other reasons focus a bit on the social side, which includes that the business has lost a key contract, specialist management, or employees. Other reasons are comprehensively discussed in this White Paper. 

It is of utmost importance to note that an exit decision must not be made impulsively or without proper calculation of the risks and alternatives to it. An exit decision may be detrimental to the shareholders or overall organization, as they could miss out on some disregarded opportunities. Hence, the reason why it is emphasized that critical thinking must be done before the decision to exit is made. However, more often than not, companies willing to shed underperforming or non-core business units could also reap substantial growth opportunities.

As considered in this White Paper, in the current economic climate and against a backdrop of reduced liquidity in the traditional bank lending markets, many businesses could benefit from exiting non-core or underperforming business units, since it a move which could free up valuable funds for investment and growth, as well as some management time, which could then be reallocated to other parts of the business.

Moving forward, this White Paper explains the issues and risks that must be considered in creating an exit strategy of a unit or business. For instance, one of the most important issues would be to compare with a focus on the attributes of that particular unit or business, the merits of a sale, a closure, or a hybrid. In such a situation, the first issue to consider is “what is for sale?”, and whether a controlled wind down would be much better suited for that particular unit or business. Likewise, management could also consider whether a hybrid of a sale and a controlled wind down fits the unit or business’s exit strategy better.

This process of considering issues and calculating risks is what is termed as an ‘Optimized Exit’. This process has been broadly explored in this White Paper. 

Moving forward, this White Paper sheds light into some crucial priorities that tend to be key in implementing an exit. Management must secure speedy sale of business and/or assets at best fair value, or wind down whilst reducing losses. Furthermore, they must moderate the financial impact of the exit on the parent company and other financial stakeholders, whilst limiting the damage to reputation, as well as the operational and time demands on parent company and management. Other priorities are expatiated in this White Paper. 

This White Paper also addresses some critical measures which must be ensured to see that an optimized exit is achieved. Some of the most important measures include the need to make a decision early enough on the way forward, which must also be followed by rapid implementation. In addition, compliance with the necessary regulatory and legal requirements is quite rewarding to the companies engaged in the Merger or Acquisition process.

Lastly, it is crucial to engage in the appropriate public relations campaign because this helps to minimize the impact of potentially adverse publicity on the brand of the parent and/or investors. Numerous other measures are considered in this White Paper. 

Additionally, this White Paper makes reference to three phases that must be thought out to ensure the optimal exit of an underperforming or non-core business during an economic crisis. These phases include, the Analysis and Assessment of Options; a Detailed Planning; and Implementation. Most exits are not done optimally, usually because they are not properly planned and insufficient attention is paid to implementation.

It is essential that a holistic approach is undertaken so that financial metrics as well as the minor issues affecting the wider group of stakeholders, employees inclusive, are given sufficient attention. Significant shareholder value can be preserved if an exit is planned and implemented properly. If it is done poorly, there could be damage to brand equity and the wider stakeholder group will suffer loss.

In creating an exit strategy, there is no one way to ensure an optimized exit, but this White Paper explains a method that has always been employed by the expert team at Brickstone Africa to ensure that every exit is carried out from start to finish, in an optimal manner. For us, the goal is to create a strategy and ensure execution to exit, in a way that is most profitable and has very little, if any at all, aftermath to our client company. 

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