Carve-out transactions: why planning remains paramount
In the realm of mergers and acquisitions (M&A), there is no operation more complex than the carve-out.
Disentangling a business from its parent company gives rise to a web of potential pitfalls, ranging from structuring the deal to ensure regulatory compliance and operational readiness, to navigating the complex integration of people and culture. These complexities only increase when the carve-out is part of a cross-border deal. However, as companies face mounting pressure to optimize shareholder value and deliver sustainable growth, carve-outs have become more attractive and they have increased threefold over the past decade.
The ability of a carve-out to improve business prosperity is legitimate, but only if both the buyer and seller do their homework beforehand to avoid costly mistakes and delays. Missed steps will end up with the proverbial goose being killed before laying the golden egg. One of the main hurdles companies encounter is underestimating the time required to execute the various processes. Missed deadlines invariably lead to unforeseen expenses. In fact, a 2020 survey by TMF Group revealed that 92% of private equity firms experiencing significant cost overruns incurred an additional expense equivalent to at least 10% of the original deal value. Transitional services agreements (TSAs) play a crucial role in mitigating cost overruns, but on their own they are insufficient. Buyers must meticulously plan their exit from TSAs and the subsequent transitional period. Having a partner to support this process and ensure a smooth transition to independence is often the best solution for companies to minimize what can otherwise be an overwhelming burden.
In this report from Harvard Business Review Analytic Services, new research underscores the significance of thorough planning, beginning well in advance of taking a business to market, in ensuring a successful outcome. It emphasises that preparation is paramount in carve-out deals, examining the requisite processes for successful integration and the groundwork that must be laid by both parties prior to signing a deal. Through interviews with leading industry experts, including legal experts and M&A advisory firms, this paper offers detailed insights into the steps that companies should take at every stage of the process. At TMF Group, we focus on helping corporates and private equity firms streamline every stage of their multicountry carve-outs. From the deal structuring to the exit of the TSA, we ensure operational excellence, shorten the dependency time on the TSA, and prepare the company for future growth. We are pleased to sponsor this practical guide to empower decision makers to take on the complexities of carve-outs and win.
