M&A Carve-outs: How to gain back your focus on what’s really important

Before joining the new company, Petra did hold a CFO position at a automotive supplier company. She is an experienced Executive that has quite some experience in Finance, Treasury and M&A. But she was never asked to lead the operational side of a Carve-out. She joined the new company, because it seemed like a great move to gather experience in the M&A environment. Now she holds responsibility for leading a Carve-out project in the new company. The business unit in scope of the Carve-out is responsible for producing large drives for business customers around the globe. The business unit holds over 3,500 employees. Due to the economic environment and fierce competition, the business unit is not able to operate with profits anymore. Therefore, the business owners decided to carve out the entity and to divest it. 

Fast forward, Petra is in the project for three months now. The expected timeline to carve out the business unit successfully is six months. Status quo: The Baseline has not been established yet – the assets and liabilities are not identified yet. She is four weeks behind the schedule. The buyer threatens to jump off if the Carve-out will be further delayed. What happened? 

Carve-out projects are complex projects that involve a large number of stakeholders. The main carve out activities are (1) conducting a thorough baselining identify all assets which will remain and which needs be transferred (2) the orchestration of the team and managing the carve-out activities and milestones, including (3) data analysis, reporting and (4) preparing the transitional services agreements (TSAs) 

(1) Baselining / asset inventors 

Petra used Microsoft Excel as the tool of choice to collect and capture the Baseline data. Why? Because Excel is well established, everybody knows how to work with it, and it is available for everyone in the company. But using Excel files to collect, validate and consolidate data from an organization that holds over 3,500 employees, requires a lot of manual work to collect, consolidate, update and process data from the whole organization. Consequently, Petra spent well over 50% of her time during the first two months with managing the Baselining process. Precious time, that she could have spent with more valuable tasks. 

(2) Orchestration of the team / project management

Petra needs to spend a lot of time instructing and managing her team and the stakeholders that are involved. Most of the project team members involved do not have prior M&A experience. Still, they are needed in order to complete the Carve-out successfully. Therefore, close attention and care is needed. Additional challenge: Those project team members need to ensure the business continuity at the same time, while supporting the Carve-Out. Petra is jumping from conversation to conversation. She is using a mix of e-mails, text memos, pre-configured status templates and individual telephone calls. She needs to explain roles and responsibilities again and again and needs to check manually if tasks have been taken care of or not. Here a phone call, there a meeting, individual solutions for every problem and more and more communication channels and formats. Overall, Petra spends around 30% of her capacity with orchestrating her team and follow-ups. Number is trending upwards. 

(3) Data consolidation, data analytics and reporting
Every week Petra needs to report to her boss. She needs to report on the progress of all eighteen workstreams and she needs to highlight all risks, mitigation measures and next planned steps. She requests the information by sending out Microsoft Excel-based spreadsheets. But since different project team members need to report in different dimensions and on different content, different sheets and different versions co-exist and create chaos. Validating, consolidating and crunching all data takes days. In order to create a report, Petra uses a separate reporting tool and needs to upload data, sheet by sheet, manually. At least 20% of her time is spent with data consolidation, data crunching and creating reports. 

(4) Prepare and closed TSAs

In order to ensure business continuity after the carve-out the new organization will consume services like HR and procurement for several month from their parent company until own competence will be build up. The scoping, negotiation and contracting of these agreements is a very time-consuming work. Petra can delegate this work partially to hear expert team, but during closing of the agreements her involvement is required very often (10% of her time). 

In retro-perspective we know that Petra could have saved 30-50% of her time, that she spent with administrative and manual tasks. We know that Petra spent most of her time with tasks that are very simple and did not add value to the project. We are talking about data review, consolidation, validation, aggregation and reporting – of different versions / updates. We are talking about comparing cells and columns and version 13 with version 21. Microsoft Excel is a great tool, but it is simply not built for collaboratively work of large number of people as in M&A and Carve-out projects. Also due to compliance and security reasons data needs to be restricted to need-to-know and tracked who provided the data including a change log. With the right toolset and processes in places, Petra can cut administration time during the Baselining process at least in half. And focus on value-adding tasks. Let’s look at each of her jobs that ate up her resources:

-       Digital baselining and asset management: To request and capture necessary data during a Baselining process, leading M&A teams use tools that allow to capture data via configured input forms, tables, and automated interfaces. Data flows are controlled through workflows and stage-gate processes. And the progress of tasks and workstreams can be monitored with regards to completeness, actuality and accuracy, in real-time. Leading teams using digital M&A collaboration platforms with pre-configured timelines and reporting dashboards that allow for easy-to-use data analysis, plausibility checks and migration, including Transactional Service Agreement management.

-       Guided orchestration of the team: Orchestrating such large and diverse teams require digital tools that guide project team members through the process. Leading teams are working with digital M&A suites that offer sophisticated playbooks, workplans and guidance.  Employees are guided throughout the process and supported with pre-configured work plans, setups for roles and responsibilities and guidance to make their job easier. The playbooks and workplans are also used to track progress and completeness and to manage the various task, risks and issues.           

-       Integrated data analysis, data monitoring and automated reporting: Instead of manual consolidation, leading teams press on a button to get a live picture of the project. If the M&A project team works within one digital system from the beginning on, data consolidation and reporting is just a matter of choosing your favorite view and templates. By working with an integrated systems that supports data analysis, monitoring and reporting, Petra saves 40% of her time and can focus on interpreting information. 

It is easy to get distracted with administrational tasks in complex projects. But especially complex M&A projects require our utmost attention. M&A teams can gain back their ability to focus on what’s really important by leveraging digital tools that are built-for-purpose. And they can realize over 40% of efficiency increases. As a closing remark, it is worth to mention that in reality, every single one those 18 Workstreams would need to set up their own administrational teams as well. Therefore, the overhead effort and potential efficiency savings are even more significant, in reality.