Capabilities in Conflict? The Fallacy of Sameness Between Divestitures and Acquisitions and its Ramifications for Firm Capability Development and Deployment

Abstract

Are divestitures really just the “flip side” of acquisitions? Both divestiture and acquisition are important processes for firm scope change. Frequently, these processes are considered to be “two sides of the same coin” wherein a divestiture is simply an acquisition performed “in reverse.” In contrast to this perspective, the authors submit that these two corporate strategic processes have fundamental differences in their motivations, implementation, and ramifications. Failure to recognize and address these differences could have serious consequences for firms, especially in the domains of capability development and deployment. In this chapter, the authors begin by recognizing the similarities between divestitures and acquisitions that have contributed to their “mirror image” reputations. The authors then identify and categorize the major differences between divestitures and acquisitions and explain how these distinctions can present significant challenges to firms when building and utilizing their corresponding divestiture and acquisition capabilities. Finally, the authors leverage these insights to develop not only suggestions for future research but also recommendations for firms to avoid succumbing to the fallacy of sameness between divestitures and acquisitions – and perhaps even successfully exploit it – when building, wielding, and honing the tools in their capability portfolios.

Citation

McGrath, P.J. and Nerkar, A. (2024), "Capabilities in Conflict? The Fallacy of Sameness Between Divestitures and Acquisitions and its Ramifications for Firm Capability Development and Deployment", Finkelstein, S. and Cooper, C.L. (Ed.) Advances in Mergers and Acquisitions (Advances in Mergers and Acquisitions, Vol. 23), Emerald Publishing Limited, Leeds, pp. 101-122. https://doi.org/10.1108/S1479-361X20240000023007