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Five success factors for carve-outs

Michael Klawon

29.April 2022

~ mins. reading time

More carve-outs in 2022! Aurelius' seventh annual corporate carve-out survey has revealed that 80% of corporate and consulting experts expect the volume of corporate carve-outs to increase in 2022. But what are the success factors of a carve-out project?

The market conditions have been rather favourable for sellers in recent years. But companies are being confronted with unprecedented new challenges and disruptions like the COVID-19 pandemic. Ambiguity and turbulences in stock markets are causing valuations to be quite volatile. And business need to adapt faster than ever before. Divesting part of the asset base may be the hard, but right consequence if the competitive position of a business segment has been dramatically weakened and cannot withstand an uncertain future.

But deciding on a carve-out is a rather easy task compared to the complexity of executing a carve-out of a business that may include a regional scope of twenty or more countries, involving highly complex IT systems, intellectual property, and so on. The success of the operational carve-out can make the difference, if the carve-out will create company value or destroy company value. Here are five tips that have been distilled for you to lead and manage carve-out projects successfully.

1. Start as early as possible with the operational carve-out plan

Carving out a business segment can take many months. In 99% of carve-outs (data from 100+ projects), the carve-out project team will discover new information that has not been revealed yet during the due diligence and high-level planning process. New information can lead to new complexity, and new risks. And this can lead to a prolonged timeline.

If a carve-out takes much longer than expected and the market is undergoing rapid developments, the deal is quickly at risk. Start the detailed planning of the operational carve-out as early as possible, this will bring you the transparency that is needed to make the right decisions at the right time. Consider every business function, sub-segment, and risk and evaluate it. Do proper risk management and evaluate different scenarios, consider everything that can go wrong and have a plan B. Leave nothing untouched.

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2. Set up a strong Carve-out Management Office (CMO) and project team that keeps all hands on deck

Signing the deal is a done deal? Not really. When the deal is signed, the hard work begins. Forming a strong team can be the differentiator for the success of the carve-out. The work of the team may impact if the carve-out will create or destroy company value. The project team consists of business leader and managers that represent the different business units and/or territories in scope.

Also, the project team includes different Workstream Leads, that lead the functions affected. The carve-out of a multi-billion-dollar asset can easily add up to a project team of over 150 people. Leading and managing a project team of over 150 people is challenging, especially in an environment that is very volatile and filled with emotions. You want to set up an experienced CMO that provides structure, foresight and anticipates risks. The CMO is the unit that leads, plans and manages all data that is generated throughout the carve-out.

3. Care for the baseline

Why baselining makes the decisive difference in carve-outs. Baselining sets the course for the success of the carve-out. The focus here is on inventorying all assets in order to conduct the separation. For this purpose, it is necessary to identify which assets are to remain with the parent company and which are to be allocated to the carve-out company. This asset inventory regularly includes extensive lists, e.g. regarding employees, contracts, licenses, applications and rights, etc.

The baselining process can be very labor-intensive, especially for multinational companies. Data needs to be gathered, validated and consolidated across many stakeholders. Common tools such as MS-Excel quickly reach their limits here, as Excel is not suitable as a collaborative tool. Incorrect or missing data can have a huge impact on the success or cost of the carve-out. Leading carve-out teams use digital solutions that offer a single source of truth and real-time collaboration.

4. Keep things simple

As said earlier, a carve-out can get highly complex if there are for example twenty workstreams and twenty-two countries in scope. While you are collecting the baseline information, a work plan is created, that describes what needs to be done, when, how, and by whom. Project and task management can become quickly overwhelming. Align your team on a simple reporting structure. Many teams are using traffic lights during reporting, because they are pretty easy to read. Green = Everything according to plan. Yellow = Somethings needs attention. Red = There is a roadblock. Keeping reporting simple will make your life and the life of the team easier.

5. Set up smooth reporting processes and structures

We talked about the need for a strong Carve-out Management Office (CMO) and about simplicity. Well, you can only manage a carve-out with simple rules, if your reporting processes and structures are state-of-the-art. If your IT Workstream reports a red light in France and you need one week until this information receives your CMO, then you are in trouble. You want to set up a rigorous reporting process that enables the team to put their issues on your desk immediately. Waiting for one week or longer until you discover any issues is not acceptable. Mitigate delays in reporting processes by deploying systems and processes with a single source of truth, data aggregation, and easy-to-handle reporting functionalities.

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