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35 JANUARY 2015 LIFESCIENCELEADER.COM gy are applied to one another. Artifacts and unauthorized workarounds from previous editions may remain and cause dissonance in expected outcomes. For instance, a company may say its average market price (AMP) is computed in the I-many program. Yet AMP printouts don't match expectations, because seven years ago a portion of the AMP computa- tions was switched to the finance system. Untangling these situations becomes an exercise in forensics. These irregularities in IT can compound over time and be dif- ficult to untangle. THE PROCESS Hunzinger says a company must allocate resources designated specifically to guide the divestiture. This includes oversight and direction from a leader appointed to drive the project. A dedicated unit/ section should be created, composed of interdisciplinary teams representing all of the functional divisions of the com- pany. These teams must understand how their work relates to that of others and how all of them relate to the divestiture. IT and the business units must all work together throughout the process, says Shaikh. Tech is the foundation of com- munication in most enterprises. It is the sinew that links the parent company to the business units. Slicing off a unit or product will require some restructuring of the enterprise, the unit, and the IT system. BE OBJECTIVE WITH YOUR VALUATION Company leadership is often too close to the business unit to have an objective understanding of its value. Leaders need to look at the unit through the eyes of a buyer. "Often leadership is looking at its busi- ness and product lines without all of the associated costs/expenses. So, the offer doesn't have a measure of true profit- ability," says Hunzinger. "That leads to a disconnect between the seller's percep- tion and what an outside party perceives the value to be." Examples of these over- sights include pension obligations, tax exposures, indemnifications, and debt. There are other expenses that may detract from the value of the sale. A buyer may ask to subtract the costs they will incur to pro- vide infrastructure and support to the new Divesting a business unit or asset requires a high degree of detailed over- sight and planning. "Even something as seemingly simple as wanting a file from the regulatory system can be complicated," says Shaikh. Proprietary information can be hidden in documents, emails, and various programs. All of these have to be reviewed and vetted by the people or business units responsible for their generation. Too often companies fail to leverage the positives or address troublesome issues associated with the business. Leadership has to provide supporting evidence of the positives. "And you must be prepared from the outset to put all of the issues — good and bad — on the table," says Hunzinger. "Then you will be able to tell the buyer what you are doing to address them." "The more you prepare up front, the more you understand the business," says Hunzinger. "This preparation will provide the data to construct a well-designed sale offer and will enable you to handle any situation during the sales process." THE KNOWN, THE UNKNOWNS, AND THE UNKNOWN UNKNOWNS "In a divestiture there are the 'knowns', 'unknowns', and 'unknown unknowns,'" says Shaikh, "and you have to prepare for all of them. In other words, expect the unexpected." He explains that a common "known" is that an inventory system will have to be converted from Company A to Company B. This is handled routinely. Or, perhaps, Company A's quality program needs to be implemented at Company B. But how these conversions and imple- mentations are conducted is an example of an "unknown." Planners need to esti- mate the time and steps necessary to align the programs and allocate that time into the divestiture plan. In every project, however, situations arise that are completely unanticipated ("unknown unknowns"). Shaikh says you have to schedule time into the divestiture plan to account for these situations. IT debt is a common occurrence. Companies buy customizable ERPs (enterprise resource planning) to manage business processes. The more customized they become, the more difficult the divestiture. Over time, layers of customized technolo- division business. Sellers may find they are left with personnel or systems that are no longer needed, now that the divestiture has been completed. Associated transac- tion expenses such as lawyer fees, filings, consultant fees, and banker fees should be considered in the value proposition. To substantiate the potential profitabil- ity of a company, sellers must convince buyers that their forecasting methodolo- gy is reliable. In today's business climate, it may be difficult to convince a buyer that historical forecasting is a good predic- tion of future revenue production. Sellers must develop and validate models that produce convincing results. AVOID AMBIGUITIES An offer to sell has to be explicit. Shaikh says, "An offer might say, 'The seller retains no right to the existing assets, and the buyer gains all rights to the existing assets.' The question then becomes what are the existing assets?" It's very difficult to conclude a dives- titure if, during the process, the seller is ambiguous on what's being sold. "Defining a transaction object is one of the biggest places companies fall short. They don't set parameters up front," says Hunzinger. Sellers sometimes add or retract assets, personnel, or entities to or from the sale during negotiations. This muddles the sale and extends the process. A primary goal in divesting has to be the reduction of ambiguity. The seller should present an offer that leaves few questions and increases confidence on the buyer side. That speeds the sale and salvages value. L You must be prepared from the outset to put all of the issues — good and bad — on the table. G L E N N H U N Z I N G E R Partner, PwC Transaction Services