Paper Download: A Portfolio Management Approach to Assessing Acquisition and Divestiture Candidates
Author: Paul Allen
The basic concepts behind portfolio optimization and asset diversification are widely recognized and understood, however application of these ideas has proven to be a bit more complicated. Many companies with highly sophisticated risking and economic modeling methodologies still rely on independent project evaluation, prescriptive evaluations (layering the asset in and out of an existing base), intuition, or luck when evaluating acquisition or divestiture opportunities. The justification for a particular divestiture or acquisition (or the rationale as communicated to the marketplace) may involve one or more of the following:
- Positions the company for future strategic growth
- Allows the company to exploit strengths
- Positions the company for consolidation
- Increases exposure to additional opportunities
- Eliminates inefficiencies
While many companies may recognize the general benefits of a particular acquisition or divestiture, quantifying these benefits and accurately projecting the impact of a deal may be very difficult. This paper outlines a specific approach to evaluating acquisitions and divestitures in terms of portfolio value, business performance, and risk management. Examples and case studies will be used to demonstrate the benefits of a portfolio management perspective in assessing the relative worth of an asset.
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