Carve-out
Planning of a Carve-out
To consolidate your business, concentrate on your core competencies or prepare your business for the implementation of new strategies, it may be necessary to sell some businesses or subsidiaries.
A carve-out can accelerate the realization of synergy benefits and we have the expertise and capacity to support you in this phase. Our experience in successful carve-outs will help us guide you through defining the objective, planning and tracking the carve-out process and achieving the planned result.
Understandably, sellers and buyers have a different point of view on any deal and often even conflicting priorities.
Nevertheless it is essential that both parties have a detailed understanding of the objectives of both sides of the potential deal.
Both parties, sellers and buyers, can boost the value of the deal through a better understanding of their business partner's objective.
The process of a carve-out includes a wide array of challenges, risks and sometimes even threats.
Important topics for sellers:
Seller
- Why is the buyer willing to buy?
- Will we prepare financial statements of the carve-out object?
- Which costs change if the carve-out object will be sold?
- What is the impact, if any, on the remaining business?
To gain an understanding of the buyer's rationale is an important topic for the seller to offer a detailed description of carve-out assets (due diligence).
Sellers are divided into two different groups: Strategic buyers and financial buyers.
Once the object and the assets of the carve-out are designated, the mandatory next step is to prepare pro forma financial statements for the carve-out object.
Pro forma financial statements are prepared before a planned transaction from a stand-point after the transaction.
Because the object is carved-out, the buyer will have a particular focus on the stand-alone costs derived from an analysis of existing direct and allocated costs. These costs are also important to any financial buyer because he derives his after-tax cash flows from this information.
Therefore, the earliest possible definition or calculation of the stand-alone value is one of the most important points of any carve-out.
History shows that seller's costs of the residual costs often are not recognized in an adequate manner. Therefore, the seller has to estimate how the carve-out may affect its remaining business and its operating cash-flows. This is also true for the tax structure. The seller should also focus on the residual costs that must be absorbed by those assets of the remaining business not sold.
The burden for the buyer begins when the working load for the seller has finished.
The most important topics for buyers are:
Buyer
- What does the buyer get?
- What are the costs for the buyer?
- What does the buyer have to do to get become operative?
- What Transitional Service Agreements (TSAs) are negotiated, if any? Focus on the following details.
Naturally, the buyer should have all information about assets and people included with the object. However, many prospective buyers suffer from a lack of information until closing the deal. Sometimes buyers even face disagreements after the closing.
It is essential to establish defined steps and mile-stones and then generate a process map to use as a structured guideline for achieving the deal value drivers.
Other topics to consider should be shared services, property rents, licenses and others rendered by the former seller. Sometimes tax issues are also relevant.
If the (new) business is a stand-alone business, the goal is to get the businesses into operation with the new owner (buyer) as fast as possible. This means stabilizing processes with the involved people and systems.
Otherwise, if the acquired business is being combined with another (already existing) entity, the buyer should implement a Project Management Office (PMO) with a defined mission statement, defined corporate governance and change management policies.
Transitional service agreements (TSAs) are essential for the successful integration of a carve-out business. After having sold the carve-out the seller may no longer be able to provide the same services at the same cost level due to changes in the seller’s resources.
These service agreements should define
- Responsible party for delivering the service,
- Detailed description and cost of the service, reporting,
- What is the procedure for in case of non-delivering.
We would apperciate to help you in these matters.
We have the experience to support you in the planning and tracking of a carve-out, as well a defining in front of all activities the object and the objective of a carve-out.