Navigating carve-outs: Strategies for success 

Carve-outs are complex.  As more corporations perform portfolio reviews, the transaction space for carve-outs is growing — both in volume and in complexity. Careful planning and execution will help you navigate the process and boost your chance for success.

Carve-outs involve untangling a specific business unit or set of assets from their parent organization. Typically, a carve-out results in one of two situations:

  1. A standalone entity is created to operate independently, pursue its strategic goals and unlock shareholder value, or
  2. The carve-out is integrated into the buyer to enhance its market position by complementing an existing business.

Breaking down carve-out challenges

The landscape for carve-outs is evolving, with new complexities arising for all stakeholders in the transaction. Key challenges include:
  • Entanglement levels:
    One of the main challenges for carve-out sellers today is the difficulty of disentangling companies for sale. To succeed, the needs of buyers and sellers must be balanced. Scale, scope, size and geographic footprint of the company will all affect the correct course of action. Inexperienced leaders may struggle to navigate these complexities.
  • Multidimensional process:
    Carve-outs impact every aspect of an organization, requiring time, attention to detail, experience and resources. Having a clear roadmap is vital. Partnering with experienced professionals can significantly enhance the likelihood of success.
  • Incomplete business:
    Buyers must manage and minimize business disruption during the disaggregation process to rebuild the new entity across its people, systems and processes. This involves developing a strategy, structure and leadership tailored to the standalone focus – all supported by intricate resource deployment.
  • Compliance complexities:
    Collaborative efforts between buyers and sellers are essential to navigate regulatory compliance limitations and protocols during the pre-close phase. Defining clear information sharing principles is key in enabling the work required for Day1 readiness.
  • Reconstruction time:
    Disentangling interrelated systems and minimizing workforce disruptions require meticulous attention to detail and cannot be rushed. At the same time, all this must be done quickly. Underestimating the time needed for this process is common and can lead to setbacks as well as suboptimal outcomes.
  • Workforce stabilization:
    Employees transitioning from a large corporation to a carve-out may feel uncertain as the change may not align with their career objectives. Effective change management, career pathing opportunities, and clarity around the employee value proposition are vital to stabilizing the workforce both during the transition period and in the long term.

A Practical Guide for Navigating Carve-outs

Explore key considerations for successful carve-outs, from developing a comprehensive plan to addressing legal compliance and talent retention. With this 10-step framework, organizations can navigate the complexities of carve-outs more effectively and achieve successful outcomes.

Smooth sailing in a complex landscape

Carve-outs pose considerable challenges, but success will be greatly enhanced with a strategic approach and a seasoned team. 

Be prepared and read our A Practical Guide for Navigating Carve-Outs. In it, you'll find a wealth of useful information to help you, as well as 10 steps to address common carve-out challenges to ensure you're well-equipped for the journey ahead.

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