616  Divestitures
The excess returns on announcement reflect the market’s expectation that 
performance will improve at both the parent company and the business to be 
divested. Such expectations are justified. For example, operating margins of 
parent and spun-off businesses significantly improve during the five years 
after completing the transaction, and the growth rate of spun-off businesses 
nearly doubles.4 Academic research confirms the improvements in operating 
performance, with larger improvements for the subsidiary than for the parent 
company.5 As in acquisitions, experience pays off: companies that divest more 
often also generate more value from a divestiture.6
That said, value creation from divestitures is far from guaranteed. A 
­McKinsey study of large U.S. spin-offs found that the best divestors indeed 
outperform the market as a whole, but that those at the bottom fall even fur-
ther behind.7 It underlines that large divestitures carry significant risks for a 
company and require thoughtful preparation and execution. Not surprisingly, 
speed matters. For large U.S. divestitures completed within 12 months, excess 
returns were around 6 percent, compared with –11 percent returns for those 
completed in 13 to 24 months.8 Lengthy divestiture trajectories are often an 
indication of poor preparation and execution. Lack of speed also increases the 
risk of business erosion (for example, the loss of key employees, managers, 
and customers in the business to be divested). Success is not only determined 
by divestiture preparation and execution, but also by a company’s portfolio 
strategy. A McKinsey study of 200 large U.S. companies over a ten-year period 
showed that companies with a passive portfolio approach—those that did not 
sell businesses or only sold poor businesses under pressure—underperformed 
companies with an active portfolio approach over those years.9 The best per-
formers systematically divested companies as well as acquired them.
An example of a company with a systematic approach is Germany-based 
Siemens, which for many years has pursued a theme of profitable growth, in-
cluding a complete portfolio restructuring via targeted acquisitions and a se-
ries of major divestitures. Siemens put its telecommunication carrier business 
into a 50–50 joint venture with Nokia in 2006 and sold its joint venture stake to 
Nokia in 2013. In 2007, it sold its Siemens VDO business (supplying parts and 
4 See B. Huyett and T. Koller, “Finding the Courage to Shrink,” McKinsey on Finance, no. 41 (Autumn 
2011): 2–6.
5 P. Cusatis, J. Miles, and J. Woolridge, “Some New Evidence That Spinoffs Create Value,” Journal of 
Applied Corporate Finance 7 (1994): 100–107.
6 M. Humphery-Jenner, R. Powell, and E. Jincheng Zhang, “Practice Makes Progress: Evidence from 
Divestitures,” Journal of Banking and Finance 105 (2019): 1–19.
7 The range between highest- and lowest-quartile shareholder returns over one, two, and three years 
after spin-off was significantly higher for divestors than for the market as a whole in a sample of 132 
large U.S. spin-offs between 1992 and 2013. See S. O’Connell and J. Thomsen, “Divestitures: How to 
Invest for Success,” McKinsey on Finance (Summer 2015): 2–6.
8 O. Ezekoye and J. Thomsen, “Going, Going, Gone,” McKinsey on Finance (August 2018): 2–6.
9 J. Brandimarte, W. Fallon, and R. McNish, “Trading the Corporate Portfolio,” McKinsey on Finance 
(Fall 2001): 1–5.