A separation or carve-out refers to a situation where a company divests a part or parts of its business. Depending on the industry and the scale, separations can be complex projects to manage, with multiple dimensions and aspects to understand and attend to. Based on my experience, I have highlighted a few key things to give extra attention to when approaching a separation.
1. Consider what to communicate and to whom
Once the decision to divest a part of the business is taken, the first thing to consider is what to communicate and to whom. The planned divestment can be disclosed either publicly or only to a core group within the organization, or an approach between these alternatives can be applied. Prior to making a final decision, the implications of the different alternatives should be explored and fully understood. If the planned divestment is to be made public at an early stage, the seller should first create clear personnel and customer retention programs that are ready for deployment. Competitors may be eager to capitalize on the uncertainties created by news of the planned divestment and can therefore aggressively attempt to target key customers and recruit key individuals away from the seller by making attractive offers. The personnel may be inclined to accept such offers, especially if their own future positions in the buyer organization are unclear.
2. Develop a view on separation complexity
Secondly, the seller should develop a view on separation complexity as early as possible. In other words, there may be numerous dependencies across many domains between the business/businesses to be divested and the remaining company – dependencies that should be identified and described, and for which various preliminary solutions should be devised. The key here will be to apply a “helicopter view” of the business, ensuring that no function is overlooked. Typically, IT is the area where intricate and time-consuming dependencies must be disentangled, but, depending on the situation, other functions may also be relevant.
3. Appoint resources that are fully focused on separation
Thirdly, a common failing is that separation projects are understaffed. Therefore, care should be taken to appoint resources that are fully focused on the separation engagements, as opposed to excessively relying on key individuals to do this job in addition to their normal business activities. Exploring the possibilities to engage external help may also be worthwhile, as M&A consultants with prior experience from similar engagements, for example, can typically be fully allocated to separation projects. Finally, initial workload estimates are usually too optimistic, potentially leading to longer lead times and bottlenecks. Thus, detailed planning including granular workload estimates, for example, should be prioritized.
4. Set realistic targets and expectations
Fourthly and finally, it is important to set realistic targets and expectations. Transaction timelines should be fact-based, incorporating key milestones and deliverables. All too often, initial timelines are over-optimistic and unachievable, and subsequently require readjustment. It is also crucial to note that the seller does not have full control over the transaction timeline, as buyer capabilities and preferences, as well as the possible need for merger approvals from competition authorities, can impact the timing of signing, closing and exit.