WEBVTT 1 00:00:03.620 --> 00:00:06.810 Carve outs are up 30% right now, 2 00:00:06.810 --> 00:00:09.870 and we see three primary drivers for that. 3 00:00:09.870 --> 00:00:12.320 The first one is if you're looking into the airline 4 00:00:12.320 --> 00:00:16.360 or tourism industry, there's a lot of post-COVID need 5 00:00:16.360 --> 00:00:20.750 to pay back loans or pay big state grants 6 00:00:20.750 --> 00:00:23.740 and that is driving the divestments of non-core assets. 7 00:00:23.740 --> 00:00:26.030 The second topic is the other way around, 8 00:00:26.030 --> 00:00:29.130 tech valuations are on record high levels, 9 00:00:29.130 --> 00:00:32.380 and some of the firms are taking that as an opportunity 10 00:00:32.380 --> 00:00:35.200 to IPO certain parts of their portfolio. 11 00:00:35.200 --> 00:00:37.210 And then on the third level, 12 00:00:37.210 --> 00:00:39.470 when we are looking into industries 13 00:00:39.470 --> 00:00:42.150 that are transforming right now like the auto industry, 14 00:00:42.150 --> 00:00:45.250 their divestments are often a way to restructure 15 00:00:45.250 --> 00:00:48.130 and optimize their portfolio for the coming years. 16 00:00:48.130 --> 00:00:49.790 When looking at carve out cost, 17 00:00:49.790 --> 00:00:52.960 we're looking primarily at three different types of costs. 18 00:00:52.960 --> 00:00:54.770 The first one is the one-off cost. 19 00:00:54.770 --> 00:00:57.510 What does it cost to separate the company 20 00:00:57.510 --> 00:00:58.950 and create a new one? 21 00:00:58.950 --> 00:01:00.950 The second one is the synergies, 22 00:01:00.950 --> 00:01:03.880 because you're creating a way smaller company, 23 00:01:03.880 --> 00:01:06.750 often in the same structures as the former company. 24 00:01:06.750 --> 00:01:09.520 You lose critical scale and procurement, 25 00:01:09.520 --> 00:01:11.980 and you will sometimes face production sites 26 00:01:11.980 --> 00:01:13.410 with under-utilization. 27 00:01:13.410 --> 00:01:17.040 Finally, a seller will often face stranded costs 28 00:01:17.040 --> 00:01:19.820 by the time the transitional services exit. 29 00:01:19.820 --> 00:01:22.190 The absolute amount that you need to spend 30 00:01:22.190 --> 00:01:24.670 on a carve out varies widely. 31 00:01:24.670 --> 00:01:28.410 Key drivers are IT, how integrated your supply chain is, 32 00:01:28.410 --> 00:01:30.640 and then whether you have shared production sites. 33 00:01:30.640 --> 00:01:35.410 We at BCG have a database on all the carve outs 34 00:01:35.410 --> 00:01:37.530 that we have worked with over the years, 35 00:01:37.530 --> 00:01:40.550 and what we see for the most complex carve outs, 36 00:01:40.550 --> 00:01:43.501 you're often looking at more than $500 million 37 00:01:43.501 --> 00:01:46.580 that you need to spend on an end-to-end separation. 38 00:01:46.580 --> 00:01:47.610 I think it's rare 39 00:01:47.610 --> 00:01:50.730 that a carve out completely fails on day one. 40 00:01:50.730 --> 00:01:52.651 What we see way more often 41 00:01:52.651 --> 00:01:57.070 is that on day one a new company struggles 42 00:01:57.070 --> 00:02:00.740 with a thousand smaller operational problems. 43 00:02:00.740 --> 00:02:04.120 And I think the key reason for that is a lack 44 00:02:04.120 --> 00:02:07.600 of integration between IT and your business. 45 00:02:07.600 --> 00:02:10.684 The other topic is the target operating model. 46 00:02:10.684 --> 00:02:14.520 A lot of carve outs are handled as pure lift and shift. 47 00:02:14.520 --> 00:02:16.320 So you take the structures 48 00:02:16.320 --> 00:02:19.290 and the processes of a way bigger company 49 00:02:19.290 --> 00:02:22.160 and use that for now a way smaller company. 50 00:02:22.160 --> 00:02:25.610 And with that, you create sort of, say a corporate monster 51 00:02:25.610 --> 00:02:28.610 that is just not profitable. 52 00:02:28.610 --> 00:02:30.590 And we think the key reason 53 00:02:30.590 --> 00:02:34.270 for that is that you need to drive separation 54 00:02:34.270 --> 00:02:36.610 and optimization at the same time 55 00:02:36.610 --> 00:02:39.910 and create a company that is lean and made to measure 56 00:02:39.910 --> 00:02:42.073 for the new type of company you want to be.