Every business holds the potential for a best owner, and it might or might not be your own. Recognizing the need for separation and effectively executing it are two distinct aspects. Successful companies not only understand this imperative but also prepare for the challenges and take practical steps. In this article, we'll explore the most compelling lessons from our survey.

Key Insights from the Survey

Programmatic Dealmakers vs. Others

Companies that regularly refresh their business portfolio through separations reported better outcomes compared to those with only one separation. Active dealmakers maintained better control over resource limits and achieved at least partial success in their separation objectives. Interestingly, companies that conducted only one separation in the past three years were less likely to engage in further separations.

The Importance of Speed

Speed is crucial for the success of a separation. For example, companies that closed spin-offs within seven months had a positive three-year median excess TSR, while those taking 19 months or longer had negative returns. Board deliberations often cause delays, and when they are delayed, separations are more likely to be delayed as well, leading to cost overruns. Early board clarity is essential for successful separations.

Navigating Transitions

Approaching separations as "sell and forget" often fails to maximize value. Separations are complex, and success depends on pre-close activities. The most frequent sticking points during separations include the duration and pricing of transitional service agreements (TSAs), talent allocation, technology architecture, and target forecasts. Negotiating TSAs and LTAs is challenging, but they are crucial for business continuity. Talent allocation is also vital, and effective leaders use various mechanisms to retain and excite employees.

Achieving Operational Excellence

Separations should be part of a well-thought-out strategy. Companies that adopt a programmatic approach to M&A outperform others, achieving higher excess TSR. Timely board decisions are important to avoid project setbacks and resource overruns. Addressing board concerns early with data-driven arguments is crucial. Proactive management, strategic use of TSAs, comprehensive planning, and proactive risk management are all essential for successful separations.Successful separations require leadership and orchestration across multiple workstreams. A steering committee provides direction, while the separation management office drives the design, planning, and implementation. As economic conditions change, value-creating separations become more important.Our survey shows that thoughtful companies not only make strategic choices but also follow through on execution. By addressing potential disruptions and mitigating risks, they create conditions for better outcomes.