Carve-out

Divestment and thus, separation and carve-out activities are integral to corporate strategies, particularly in the context of strategic focus and growth. Major industry disruptions or entering new business areas require fundamental portfolio reconfigurations to prioritize future investments, strengthen balance sheets and generate additional funding from IPOs, spin-offs or divesting of non-core businesses.

Deal Scenarios

Sellers must consider the characteristics of potential buyers, in particular those differentiated by financial investors and the capital market (in case of an IPO), and strategic investors. Financial investors usually require a fully standalone transaction perimeter, for example in the case of a spin-off or IPO complying with public-reporting and listing requirements (Link to Equity Capital Markets web page).

You can distinguish between three different tracks for a potential divestment, all requiring financial, tax, and operational carve-out activities as a preparational stage.

Strategic investors often see acquisitions as an add-on to already existing businesses and therefore seek to integrate the core assets of the transaction perimeter, while not necessarily interested in the overhead and support activities of the sold asset. They are looking either for an asset deal, or a carved-out business with supporting, interim Transitional Service Agreements to ensure business continuity until the acquired business is fully integrated into the buyer's organization, or into a to-be-defined Joint Venture organization.

Carve-outs can also be made for internal purposes, such as strategic decisions to restructure a business or optimize operations. In these cases, the same level of analysis and planning is required as in a deal-related carve-out. The key difference is that the seller is not seeking a buyer for the asset, but rather looking to separate it from the rest of the organization.

Our Carve-out approach

In any divestment scenario, the deal rationale for the seller and the potential buyer universe must be fully understood. Sellers usually overestimate the achievable purchase price, and have no clear view on the related cost if they retain the business they intend to sell (“hold case”).

In the case of a mature business, retaining the business can result in significant restructuring and wind-down costs which often exceed even a low purchase price for the asset. The willingness of the potential buyer universe to buy the asset highly depends on the value the asset provides for a potential 'best owner'. If there is no strategic investor available, financial investors determine the purchase price from the value creation they expect to realize compared to the current owner.

Carve-out timeline

Prior to any divestment decision, we recommend that our clients strictly follow a value-based portfolio approach by (re)formulating a clear-cut portfolio strategy and optimizing their business portfolio accordingly. Both quantitative and qualitative considerations are taken into account with a particular focus on the trade-off between risk and performance. By being enabled to make informed decisions, you are ready to initiate your carve-out process, which follows a three-step approach, usually with a total timeline of 12-18 months.