What does divestiture refer to in a business context?

In a business context, divestiture specifically refers to the process of selling off a business unit or asset. This strategic move can occur for a variety of reasons, such as to focus on core operations, raise capital, or respond to market pressures. Companies might decide to divest a segment that is underperforming or no longer aligns with their strategic objectives, thus streamlining their operations and potentially improving overall financial performance.

Divestiture can also facilitate better resource allocation within the organization, as the revenues from sold assets can be reinvested into more profitable areas of the business or used to pay down debt. The decision to divest is often a critical component of a broader business strategy aimed at enhancing competitiveness and long-term success. By shedding non-essential assets, a firm can sharpen its focus, ultimately aiming for greater efficiency and effectiveness in its core functions.