What corporations and M&A advisors are underestimating in a carve-out or M&A transaction

What corporations and M&A advisors are underestimating in a carve-out or M&A transaction

16 July 2019

Companies and M&A advisors that participate in carve-outs and M&A deals are underestimating certain elements of the process which can be detrimental to the transactions and ultimately the success of the new company.

In an M&A deal, including the exploding segment of carve-outs, missing key parts of the planning process, and not having on-the-ground support, can add time and extra costs to companies. Before launching this type of transaction, especially one with a global footprint, there are many steps to be aware of, and choosing an “operational readiness” partner to assist in the process can be highly beneficial to getting the NewCo up and running.

While every carve-out, merger and acquisition transaction is different, businesses need to pay close attention to steps surrounding both the pre-transaction closing phase, and the first 90 days after the closing. Multiple countries and tight deadlines increase the complexities, especially when there is little or no understanding of the local requirements. Having a checklist, like the one below, can help with planning and sticking to timelines that are required to get the NewCo operational. 

M&A and carve-out operational readiness checklist 

  • legal entity incorporation;
  • local directorships (a Board requirement in many countries); 
  • employee regulations –TUPE obligations in Europe (see below) and similar benefits requirements; 
  • business licenses and tax registrations;
  • bank account setup;
  • payroll registrations, and the provision of ongoing payroll services;
  • accounting systems and setup; 
  • corporate secretarial processes needed for local compliance.

Challenges for companies

The biggest problem that companies face throughout the carve-out or M&A process is that they underestimate the amount of time required to complete this list.

Depending on the country you are in and moving to, there are different regulations established to protect employees that must be accounted for during a carve- out or merger. For example, Transfer of Undertakings / Protection of Employment (“TUPE”) regulations in Europe mandate that the benefits and other terms of employment with a previous employer must transfer to the new employer. Not being aware of these requirements, and how to take care of them, can affect operational readiness and timelines.  

Another example is opening a bank account. This may seem easy in concept, but with the Know Your Client (KYC) requirements, it can add weeks or months to the timeline. Not understanding the intricacies that come with tax registrations and business licence requirements in specific jurisdictions can also cause delays, which can hold up the closing of the transaction.

After the closing and when the NewCo company is created, there are still many challenges that will arise. If systems for accounting and tax or corporate secretarial compliance are not properly set up at the outset, it can cause headaches, and even lead to compliance problems with local authorities, which in turn can lead to fines, penalties and in some cases even criminal liability. Employee benefits can also be a hassle, as they need to be appropriate for the country where the new business and its staff are located.

Lawyers and other advisors that support these types of transactions are excellent, but often they don’t have the time or expertise to cover these typically very operationally oriented steps. TMF Group and our Transaction Services experts can bring value to the success of these engagements by working alongside the other legal and financial advisors, to handle the entirety or even just certain aspects of the checklist, in support of their clients. 

TMF Group

TMF Group are the experts at understanding and completing all the steps that a company needs to take before and after a carve-out or M&A transaction to ensure operational readiness. We can extend your companies capabilities and support you both at headquarters, and on the ground in your local offices. To ensure success and efficiency relative to a global M&A or carve-out deal, contact us as soon as the deal is announced, to have your company or clients benefit from all the Transaction Services assistance TMF Group offers. 

Written by

Larry Harding

Former Head of North America

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