WEBCAST: Uncomplicating carve-outs: simplifying the route to success in business separation

The M&A outlook for 2021 looks buoyant, as countries emerge from lockdown restrictions and vaccine rollouts reinvigorate consumer confidence.

Economic awakening brings great opportunity for business leaders to strategically recalibrate their portfolio to focus more on their core offerings, while carefully considered acquisitions could seriously accelerate strategic growth. With significant rewards up for grabs on both buy- and sell-sides, it’s all the more important to ensure that nothing is left to chance when entering into carve-out activity.

This was the topic of conversation in our most recent webinar, and our perspectives from previous projects all came back to three critical themes to keep in mind:

• Preparation is everything:

While carving out a business and moving to a standalone state will benefit from speed over elegance in terms of reaching Day 1 at the earliest opportunity, this shouldn’t be misunderstood for not taking the time before even exposing yourself to the market to fully analyse and assess the business you have before you.

From establishing the initial deal perimeter in terms of people, products, systems and customers to building a robust value creation plan that will generate maximum attraction from potential buyers, this up-front attention to detail will pay dividends once the process is under way – and ensure that sellers don’t leave value on the table.

Buy-side, understanding the strategic objectives for acquisition – breaking into new markets, standalone or integrated, buy-and-build – is also crucial before negotiations begin. Knowing the target operating model that’s fit for the future will help immensely in the immediate term.

• Don’t underestimate complexity:

Any assumptions that carve-outs are anything but highly complex are delusional. The levels of entanglement within large entities from brand, customer, shared services and technology perspectives, to name just a few, will present myriad challenges to be unpicked and decoupled from a parent company.

Businesses identified by sellers for carve-out may well have suffered from a lack of HQ focus, investment or just general love and attention in recent years. But that’s not to say that they weren’t tightly integrated initially within a portfolio at the outset, with the best intentions of forging productive collaboration and realising other business synergies.

Multijurisdictional factors including legal entities and tax regimes all come into play here, and after the route out of entanglement has been identified – how will the business be optimised once again?

There is always a path to separation through complexity – but it requires the rigorous application of point one above.

• The job only starts at Day 1:

Successfully completing separation and reaching Day 1 on schedule, with a set of TSAs that all parties are confident can be worked through without unexpected delays, will of course be cause for celebration.

However, a value creation plan on paper is just that. Day 1 brings the need for a relentless obsession with implementation, to get a business fighting fit, agile and nimble enough to be ready for growth.

The operating model must quickly be established to facilitate that transformation, from process optimisation through to appropriate legal structures and everything in between. For PE funds, it may feel like a race against time to optimise a business to a point where the strategy that was invested in in the first place can finally be attacked to start delivering returns.

Here, it’s people that will come to the fore – the right management on board with the vision, track record and relevant experience to reinvigorate the carved out entity. With careful planning up front, those leaders will hopefully have been identified and secured. But, once again, this all plays back to preparation, if the catalyst of a carve out is to truly be realised by delivering the value it first promised.

Watch the full 30-minute webinar by clicking below.