Strategic commercial interventions: exit strategy principles

1. Rationale and purpose

This paper considers divestment. When the Scottish Government (SG) takes a financial stake in strategic commercial assets, the ultimate aim is to return the business to the private sector and secure value for the taxpayer and a future for the business. The Business Investment Framework (BIF) within the Scottish Public Finance Manual (SPFM)^[1] highlights the need to have an up to date exit strategy relating to a business intervention:

“Where public funds are tied-up in an investment, they are not then available to support the delivery of general public services. It is therefore important for Ministers to have a view, at the point of investment, on their long-term aspirations for the entity in question and the terms of the investment should reflect the length of time that Ministers then expect to hold it, in whole or in part. Where possible, potential exit strategies must be identified and subject to periodic review. Officials must ensure there are periodic review points at which the SG and the entity formally review the need for Ministers to hold an investment where there is no defined exit. These review points should consider performance against the initial strategy. Exit strategies should be accompanied by a benefit realisation plan to secure value for money outcomes”.

The requirement for consideration of an appropriate exit strategy is also highlighted in the National Audit Office’s ‘Monitoring and responding to companies in distress’ good practice guide^[2], where it states “if intervention is being considered, the government will need to understand the costs and benefits of all its options, and clearly document its decisions including consideration, from the outset, of exit options, which are prepared for appropriately and in a timely fashion”.

It is important therefore that SG proactively considers its divestment options in relation to its commercial assets. This guidance will look to address this by setting out best practice in relation to devising and reviewing appropriate exit strategies across existing commercial assets and in consideration of any future interventions.

The guidance is intended to primarily focus on how SG will exit from the commercial assets currently managed by the Strategic Commercial Assets Division (SCAD), however the intention is that the principles laid out here can be easily applied to similar scenarios.