Funding growth-Divestment

Divestment in the Context of Funding Growth

Definition:

Divestment refers to the strategic decision made by a company to sell off assets or subsidiary companies in order to raise funds for various purposes.

Key Points

Raising Finances:

• Purpose: Divestment is primarily undertaken to raise capital quickly by selling assets or subsidiaries.
• Example: In 2003, Stagecoach, a Scottish bus operator, sold its Coach USA operations in Texas for £18 million to generate immediate funds.

Focus on Profitable Aspects:

• Purpose: Companies engage in divestment to redirect their focus and resources towards more profitable aspects of their business.
• Example: When British Aerospace owned Rover cars, they divested it by selling it to BMW, allowing them to concentrate on their core aerospace business.

Reinvestment in Core Areas:

• Outcome: The capital generated from divestment can be reinvested in the company's core areas, such as research and development, expansion, or improving existing operations.
• Benefits: This reinvestment can lead to enhanced growth and profitability in the long run.

Conclusion

Divestment is a strategic financial maneuver that enables companies to quickly raise funds by selling assets or subsidiaries. It serves the dual purpose of shedding non-core businesses and reallocating capital to more lucrative ventures, ultimately contributing to a company's growth and profitability.