The Deloitte Carve-Out Lab: optimising carve-outs

From tax to operations: the process of carving out/selling parts of companies raises complex questions

Portfolio management is a constant topic for companies – a topic with many strategic, financial, and operational dimensions. Whether portfolio changes are necessary because of a strategic realignment or to fulfil regulatory requirements, trigger a divestment or closure it often involves jumping a series of hurdles that are crucial to the future success. The Deloitte Carve-Out Lab helps companies prepare effectively for this multi-stage process – from the portfolio decision to implementation, financial to operational separation, and the creation of a successful independent new company.

Nowadays, carving out certain components of a business is a common course of action, often taken, for example, for the purpose of active portfolio adjustment. Since the process involves selling assets as independent, integral entities, it automatically touches on all aspects of the business and finance, operations, tax, law, IT and HR. The interconnectivity that often exists means separation can be complex. Inadequate preparation poses major risks. An excessively optimistic estimate of the time frame and the resources required, or a lack of expertise in the many detailed aspects of the process, can create significant unexpected cost, business disruption or longer than desired reliance on the legacy owner.

Precise planning is therefore vital, and the Deloitte Carve-Out Lab offers valuable support through an interactive workshop format. An interdisciplinary team of experts reviews the important considerations from the perspective of the seller and the potential buyer. During the preparations, the actual costs and work involved in the M&A process must be given as much attention as the development of a coherent overall concept for the new business structure. It will, after all, only be possible to find suitable potential buyers if there is a convincing equity story. However, as a starting point it is essential to clarify the reasons for the carve-out – and which model is most suitable for the independent parts of the company.

Objectives, strategies, and models

There are a wide variety of motives for carve-outs, but a number of typical ones can be identified. It frequently becomes necessary to adjust a portfolio due to strategic changes. If certain parts of a company are no longer compatible with the overall strategy, it makes sense to divest them and focus more strongly on the core business. The proceeds can then be used, for example, to invest in the core business or strengthen it by means of a suitable acquisition, helping to generate growth momentum and competitive advantages.

A different scenario is when companies have to comply with regulatory conditions, for instance as part of an acquisition. If the transaction results in a monopoly, for example, the competition authorities may stipulate that certain parts of the company must be sold. A carve-out may also become necessary due to a change in the group structure, such as switching from an integrated group to a holding company. Another reason for selling assets might be simply that they are proving less successful than others in certain business fields, product lines or regional markets. Shareholders often exert targeted pressure in such cases in order to bring about divestments that raise the valuation of the remaining group. If significant refinancing is required soon, this too may motivate a company to offload assets in preparation.

Serious liquidity problems or even impending insolvency provide further potential motives. The proceeds of a carve-out can then be used to secure the company’s financial survival. Depending on the individual circumstances, various models can be considered for the structure of the transaction and definition of the perimeters. The transaction could involve a sale as a stand-alone firm to a strategic buyer or private equity company, listing on a stock exchange, a management buyout, the involvement of a joint venture or continuation of business activities as an independent entity.

Phases and success factors

Carve-outs can feel like an adventure of 100,000 actions, but fortunately not all these start at the same time. Being clear where to start and the critical path will ensure the complexity remains digestible for the organisation and teams involved.

Different skills are required in the different phases. The experts of the Deloitte Carve-Out Lab provide precise advice, tailored to the context. Nine elements are particularly important for a successful process:

The Deloitte Carve-Out Lab

Specialised, interactive and holistic – with the Carve-Out Lab, Deloitte Switzerland offers a compact format for preparing all phases of the transaction. Preliminary consultations are held to ascertain individual requirements, which are then incorporated into the composition of the cross-functional expert team for the Lab. The result of the half-day or full-day workshop is a specific milestone plan, which companies can use to implement their carve-out project successfully. The experts at Deloitte Switzerland are available to provide further information at any time.

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