When divesting is the best business

While corporate acquisitions are typically celebrated as signs of ambition, the act of selling a business often attracts suspicion. However, empirical evidence increasingly suggests that divestitures, or selling off business units, tend to generate more value for shareholders than acquisitions. This curious asymmetry highlights a traditional corporate bias towards buying rather than selling, even when selling might be the more strategically sound decision.

This perspective gains significant relevance for Brazilian companies navigating a period of profound transformation. Factors such as the implementation of tax reform, the rapid spread of artificial intelligence, the reorganization of global supply chains, and succession challenges in family businesses all necessitate continuous strategic reviews. In such a dynamic environment, the decision of where to invest becomes intrinsically linked to the decision of where to divest.

Emilie Feldman, a professor at the Wharton School, emphasizes this point in her work, arguing that while decades of business literature have focused on mergers and acquisitions, the other half of the equation, when and why to sell an asset, has received comparatively little attention. Feldman proposes a shift in perspective: instead of solely asking what to buy, leaders should constantly re-evaluate what they already own. The critical question to ask is: if this asset were not currently part of the company, would we buy it again at its current market price? If the answer is no, the asset might be retained due to historical reasons or inertia rather than strategic imperative.

Maintaining underperforming assets consumes valuable resources, including capital, talent, and leadership attention, which could be allocated to more promising ventures. In economies like Brazil's, where the cost of capital is historically high, holding onto low-potential assets means sacrificing opportunities for innovation, expansion, and productivity gains. Ultimately, sustained growth depends less on the sheer quantity of businesses a company controls and more on its discipline in allocating capital to where it yields the highest economic return. Furthermore, the most suitable candidate for divestment is not always the worst-performing asset; it might be a good business that could thrive even more under a different ownership structure capable of unlocking synergies or scale that the current owner cannot capture.