Partial sell off refers to the selling of one business plant or unit of a firm to another firm. The partial sell off is also sometimes called as the slump sale. From the perspective of the seller, the partial sell off is actually a type of contraction.
Whereas, from the perspective of buyer, the partial sell off is a form of business expansion. In the process of partial sell off, the selling firm, which is termed as the parent firm, transfers both the assets and liabilities of the selling unit.
In other words, the parent firm transfers the entire ownership position in that business unit to the buyer firm.
The procedures and steps that are followed while going for a sell off are:
Estimation of the divisional post-tax cash flow
Establishment of the discount rate for the unit or division
Calculation of the present value of the division
Finding the market value of the liabilities that are division specific
Deducing the ownership position value of parent firm in the division
Comparing the value of ownership position (VOP)
The reason behind going for sell off may be diverse and different for the firms. Some of the most important reasons that are associated with the partial sell off concept are:
Downsizing the losses – When a unit of business is not giving a normal rate of return, the business may think of selling off that particular unit. This is one of the most important reasons of going for partial sell off.
Raising Capital – This is a very common motive for partial sell off. The parent firm may sell a division of its business to another firm when it requires raising capital for some reason.
Efficiency Gain – Efficiency gain is resulted from selling off a division when the unit that is divested is actually worth more than the value of the whole firm. This concept is known as reverse synergy and it is the synergistic benefit that attracts the merger.
Strategic Realignment – Often a parent company may find a unit of its business not fitting in line with the strategic plan of the business. In those cases, the parent company sells off that particular division of the business and concentrates on its core business.
Last Updated on : 27th June 2013