When a company is looking to divest one of its units, the best acquirer is a strategic buyer with lots of cash.
Wait, that seems to be a terrific buyer for almost any type of business!
There are other alternatives, of course. Each approach has its positives and negatives.
Private equity firms are often good places to shop a business that is for sale. Assuming that business is large enough and without too many problems. Private equity firms tend to be more demanding in what they are buying than strategic industry buyers. They are more demanding in their due diligence. They are usually not willing to pay as much as a strategic buyer since they need to exit the investment quickly and do not have other operating businesses that can yield synergistic value.
An IPO is almost never a good option. This is a difficult approach, it is expensive and highly dependent on conditions in the public stock markets. Also, business units of larger companies are rarely stand-alone companies. The tax consequences can be prohibitive also.
Establishing a joint venture between buyer and seller to manage the unit is sometimes considered. Then after some time, the ownership is transitioned to the buyer. The problem here is that, when the large company seller wants to sell, they usually want to exit right away. Of course, this option is very common in the sale of smaller (lower middle market) privately held businesses. I discussed this in earlier posts on this site.
At the end of the day, as they say in England, it all depends on the business unit being sold. If the unit has weaknesses, the use of structures other than cash tends to be driven by whatever it takes to make the deal happen.
When a company decides to divest a business unit, it may be necessary to be not just realistic about the prospects but also creative. The seller needs to think about what deal structures will work best at the beginning of the process. Not in the middle of the sales process or, worse, at the end.
