Carve-outs remain a vital component of corporate strategy, acting as a catalyst for capital generation – whether for reinvestment or distribution – whilst sharpening strategic focus. Executed effectively, divestitures offer an opportunity to create strategic agility, free up resources and enhance overall organisational performance.

However, carve-outs are rarely straightforward. They are transformative projects that introduce complexities and risk, requiring careful and methodical management to succeed. If mishandled, they can lead to operational challenges, erode stakeholder confidence and leave significant value on the table.

Operational priorities for a successful carve-out

A successful carve-out begins with clarity and flexibility on the deal thesis and proposed transaction perimeter. Planning should start by assessing how operationally standalone, or deeply “entangled”, the target business is within the wider organisation. This dependency is often underestimated, resulting in challenges with systems, people, assets, processes and contracts and data. A lack of understanding can create confusion within the financial information presented and raise acquiror concerns around operational continuity. A thorough diagnostic and planning phase mitigates these risks whilst simultaneously identifying the key milestones and strategic decisions to be made during the separation journey, to minimise regret cost.

Carve-outs inevitably bring an element of uncertainty – both in timing and in the future operating landscape, particularly when the acquiror is unknown. Various levers may need to be flexed during the transaction process. Strategic clarity from the outset on the transaction perimeter and non-negotiables enables agile decision making, supported by real-time value impact assessments that keep negotiations and separation planning focused.

The separation itself should not be overlooked. Post-transaction execution often demands significant effort. A clear separation plan prioritising continuity, both for the target business and the remaining organisation, is essential for timely post-transaction success. Understanding both parties’ appetite for Transitional Service Agreements (TSAs) will shape the critical path to Day 1 readiness, however this may create operational challenges to deliver and exit post-transaction. Striking the right balance between a smooth transition and clear exit route is essential.

Technology considerations: a critical value lever

It is perhaps unsurprising that technology and data is usually the area of most complexity when carving out a business from a group, and as technology can be both the catalyst and barrier to realising value and managing risk within a business, it is critical that it is given sufficient time and consideration.

It may be that technology forms the basis of the carved-out business’ value proposition, or the data is the attractive asset that an acquirer is going to attribute a premium to. In these instances, ensuring that value is protected is critical to the deal. Risks are rife in these situations, but even more “straightforward” carve-outs have the potential to be riddled with key person dependencies, technical debt and security vulnerabilities.

TSAs, which are more common and extensive when it relates to technology and data, are a necessary evil that require their own close management. And while this transitional period is playing out, any publicity surrounding the transaction drives increased cyber security exposure, which both the seller and acquiror must mitigate.

However, it is important not to focus just on the transaction and the immediate separation: this is an opportunity to design a fit for purpose technology environment built for the target perimeter, which can lay the foundation for future scalability, resilience, and therefore value.

Managing stakeholders through the carve-out process

Carve-outs inevitably create a period of change and uncertainty across an organisation. The human element of a transaction should never be underestimated.

The foundation of any successful process is a laser focus on continuity and communication. Gaining the confidence of employees, customers and investors will hinge on their understanding of the impact that the separation and long-term plan will have on them. Clear messaging at the right time on roles, responsibilities, cultural identity, and operational stability is vital.

Establishing a comprehensive stakeholder engagement, communication and change plan which identifies risks and addresses how to mitigate them, is key to ensuring a seamless transition period.

How our carve-out experts can help your organisation

We understand the complexities a carve-out will bring, and how to both protect and enhance value throughout a process. Our specialist team provides hands-on tailored support to guide you through the full lifecycle of a divestment and carve-out. By leveraging our extensive experience and global presence we will help you maximise the value of your carve-out whilst achieving a smooth and efficient separation.

For more information, get in touch with Mohi Khan.

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