Divesting reduces the firm size and therefore does not look very attractive at first. However, there are a number of reasons, which make divesting a consierable option. Among these reasons to divest assets or to spin-off a specific business area of the company are changes in demand, lower productivity compared to peers, the need to generate cash (e.g. during financial distress), technology changes that require different skill sets or additional investments, cost of capital exceeding returns on a specific business area, management considerations to offer new opportunities to managers or employees, which can create future gains for a company. In addition, the company may be in a position to generate higher returns for its shareholders by focusing on fewer business areas.
- Timing during divestment waves