For many companies, the carve-out process represents an intriguing perspective.
Being independent without having to depend on a group or contribute to its dynamics and costs is an interesting driver for separation. A well-managed carve-out can also unlock the value of assets, leading to higher sales price of the company.
However, the process of carve-out, spin-off or sale of company parts or business units involves a number of complexities. One has to be able to deal with sensitive strategic, operational and financial issues and keep the right people on board.
It requires the clear definition of business areas and their operational boundaries. Especially buyers have a great interest in minimising operational disruptions through a smooth transition for employees, systems and processes. It is critical for the seller that only the obligations under the law on the transferred perimeter remain with him.
What to expect
Reasons for a carve-out
The main objective is to increase the value of the company focusing on the core business
Divestment and thus, separation and carve-out activities are integral to corporate strategies, particularly in the context of strategic focus and growth. By simplifying the corporate structure and optimising processes, companies can improve their efficiency and respond better to market changes.
More specifically, the seller wants to:
- spin off several business units
- increase the attractiveness for specialised investors or the transfer of a business unit to a new company
- reduce complexities and risks related to the business
Pivotal points for success
Define the implementation strategy
Ensure a strong governance of this project within the company. Goals, roles and responsibilities must be clearly defined. A project management office and team are needed and a capable manager must be appointed who can act cross-functionally and who reports directly to the board or CEO.
Communicate
You need to address all relevant stakeholders clearly and specifically, provide them with guidance and involve them in the process. It takes effective communication with employees, suppliers, customers and stakeholders, managing resistance or concerns.
Act
It requires urgency and consistency in the implementation of the necessary measures. The time frame is limited. At the same time, bear in mind that this topic is new to many of those involved. Managers must therefore be able to act independently and impartially, without being guided by obligations arising from historical dependencies.
My advice – never proceed without a structured approach
| Preparation Prerequisites | →
| Implementation Carve-Out | →
| Post transaction Stabilisation |
|---|---|---|---|---|
| Including strategic analysis, due diligence, legal issues and the transaction process | Carve-out with legal and operational segregation with full support from IT, HR, Legal, Finance | The follow-up phase ensures that the carve-out is successfully completed and that both units can operate in a stable and efficient mode |
Business and IT – where the cracks will show
A ‘carve-out’ requires quick and precise execution on what is often quite treacherous terrain. Although the main focus is on the needs of the business, technical and organisational preparedness plays a crucial role in ensuring a successful transition.
IT Infrastructure
Managing the information systems and technologies landscape requires:
- unbundling and reconfiguring the necessary IT systems
- separating the infrastructure while complying with technical and legal requirements
- carrying out a complete inventory of the IT environment involve
with full guarantee of regulatory compliance in terms of civil and fiscal, privacy and security matters with adequate IT-Governance.
Data Management
A key aspect is the careful handling of the data, otherwise you risk a crash.
Here are some examples:
In some cases, the purchaser only needs the data to integrate it into his existing IT system. To maximise business value, the separation must in any case aim to create streamlined processes adapted to the new entity. It is often necessary to reorganise business processes ‘from scratch’ to ensure that the separated unit or company has operational continuity.
Accuracy in data selection is crucial: neither too much nor too little data must be transferred, including related systems.
Each separation phase requires continuous testing: ‘design, test, and test again’.
Focus on people
Of course, carve-out is not only about technology and data, but also about people. It is important to consider multiple formal and human aspects. Managing this well can make the difference between a successful carve-out and one that struggles to achieve its objectives.
They are to be managed:
- the transfer of all administrative issues for the employees involved
- the necessary contractual adjustments regarding applicabile labour law
- clear and transparent communication to support collaborators during the transition
Time is money – the right interim executive for a carve out
Just here a professional capable of preventing ‘dead ends’ or ‘planned incidents’ comes into play. Involving him or her from the earliest stages of this strategic transformation with appropriate oversight and leadership is not only useful, but often indispensable.
A good interim manager also brings a fresh, objective perspective on people, processes and strategies, freeing business leaders from operational duties to focus on crucial decisions.
The right professional navigates contracts, service agreements, and all those operational issues that arise during and after the transaction, to orchestrate a complete strategic reorganisation. In a nutshell, the interim manager is a temporary but decisive expert, capable of bringing order to chaos and guiding the company through the rough waters of a carve-out.
Managing a successful carve-out or spin-off requires skills similar to M&A processes.
Key-elements for a successful carve-out
Essential capabilities to manage bumpy roads:
With a solid, well-integrated strategy, supported by in-depth analysis and the involvement of experts, it becomes possible to achieve one’s goals and ensure lasting success.
In a nutshell, some key ingredients:
- Timely and accurate planning with clear objectives
- Involving all stakeholders at an early stage
- Rigorous project and risk management to reduce surprises
- Paying close attention to data quality for more accurate and informed decisions
- Continuous and transparent communication to keep everyone aligned
- Cultivating employee commitment, a fundamental pillar for change
- Keeping flexible and adaptable, to respond quickly to new challenges
- Integrate and/or migrate IT systems smoothly to avoid disruptions
- Having legal and tax advice on board to comply with all regulations
