When a company decides to carve out and divest part of its
business, there's often huge value at stake.
Capturing that value takes not only thorough preparation and
management of the deal process, but also strong execution of the
carve-out itself.
Let's think about three ways to get the basics right in
carve-outs.
Firstly, a great carve-out process analyzes important
strategic questions and uses that analysis to provide timely
and accurate information to the deal team.
Often the carve-out team will work with the deal team to
clarify the exact perimeter of the transaction.
In other words, which assets and liabilities will be included or
excluded from the carve-out.
Also, the carve-out team will frequently define a lean future
operating model for the carve-out to become a standalone
business.
By clearly outlining how to separate the carve-out and
transform it to this leaner end state, we can help pave the way
for a higher valuation.
Secondly, to understand value creation from a divestiture, you
need to assess the long-term strategic, operational and
financial implications of the carve-out on the parent company.
One of the biggest issues to consider is stranded costs.
In one recent case, we worked with a large chemicals company
to implement stranded cost reduction measures in parallel
with the deal process.
By doing so, we help the client enable the rapid mitigation of
hundreds of millions of dollars in stranded costs.
Finally, a good carve-out process seeks to minimize any
loss of business momentum while the deal unfolds.
There are a number of risks to watch out for here.
For instance, companies may see productivity drop as staff get
distracted by how the carve-out affects them personally, rather
than focusing on the work at hand.
Sometimes the uncertainty surrounding a carve-out can lead
to higher staff turnover.
Other times you can see a loss of sales as customers adopt a
wait and see attitude.
All of these factors need to be anticipated and managed
appropriately in a carve-out program.
The overarching message is this: don't treat carve-out work as
some sort of mechanical separation exercise.
Instead, recognize that carve-outs offer an opportunity
to create and protect value.
This recognition is an important first step on the road to
carve-out success.