Divesting the portfolio to become stronger
The owner of a leading B2B digital business with solid operating profit and longstanding customers was divested to maintain portfolio strength and long-term shareholder value.
Despite stable operating profit and some long-term customer relationships, management were concerned at the accelerating growth of its main competitor in a new intermediary channel. Management knew it could respond tactically through price promotions and further outsourcing of non-core functions but wanted to better understand how the market was changing and why. Management turned to Focus Solutions for assistance.
The solution was to understand the numerous competitive business-models and how these culminated in alternative value propositions that attracted new customers and higher operating margins, and were aligned or misaligned with long-term market trends and changing dynamics. Our approach was to better understand customer buying criteria, quantify head-winds for comparative business-models – specifically customer cost-reduction initiatives, and the future importance of a new intermediary segment that was responsible for competitor growth.
Conclusion? The competitive disadvantage from not having relationships with leading intermediaries diminished future growth prospects in an otherwise static market. The company’s ability to maintain its current value-added service proposition with higher operating costs, whilst its main competitor was able to cross-subsidise aggressive price discounts in the core market, presented a formidable challenge manifesting itself in an accelerated fall in customer retention. The long-term outlook for the business looked challenging: the Group was no longer the best owner of the company.
The answer was to divest – selling the business at a premium to the main competitor who was able to successfully create and position two distinct customer solutions: a value for money (low margin) offer and a premium (high margin) offer. It now dominates the niche segment and promotes/demotes customers up and down its product portfolio to maximise operating margin.
