People & Organization

Carve-Out


A carve-out occurs when a parent company sells a minority equity stake in a wholly owned subsidiary or division. The purpose of a carve-out is generally structural and organisational in nature. The goal is often to establish a new independence for the carve-out, with its own board of directors and financial statements.

A successful carve-out needs to meet a range of regulatory requirements for its independent status to be recognised. This process is further complicated when the minority equity stake is to be sold in an initial public offering (IPO). Even more challenging than the regulatory standards, a successful process needs to create a resulting carve-out that is actually independent in its culture and operations. Whatever the ultimate purpose of the project, it is essential that the resulting carve-out meet a range of very specific organisational and structural goals.

For these goals to be met, it is critical that the project is managed by specialists with direct experience of past successful carve-out operations. Let a Consultport consultant guide your carve-out project to ensure that you reach your desired destination.

  • Confirming Deal Boundaries: To create a successful carve-out you need to ensure that it has all the necessary components for a full and independent operating model. This also involves significant due diligence to identify potential costs in terms of leases, legacies and licences that will arise when the carve-out becomes legally independent of the parent company.
  • Establishing a Procedural Model: Carve-out projects need to proceed according to a strict schedule determined at the beginning. Business operations must be decoupled from the parent company sequentially to ensure that dependent operations are not halted by an incomplete organisation of workflow. Furthermore, there needs to be a clear vision for what the final carve-out will look like going forward once the process is complete.
  • Balancing Synergies and Independence: In a carve-out it is important to distinguish between the separation of key business operations and the more mundane support that a parent company can provide. Synergies and cost-saving can be maintained by the continued use of certain parent company support services, such as human resources and IT. A consultant will help to arrange the complex interconnections between parent company and carve-out in a way that balances potential synergies and the essentials of independence.
  • Creating the Transition Services Agreement: The transition services agreement (TSA) will outline the legal and contractual framework for the carve-out after it achieves independence. It is essential that the TSA is created with precision to avoid the delays and costs that are often associated with ill-prepared carve-out projects. Moreover, both sides of a carve-out have competing interests from the terms of the TSA, so an experienced consultant will ensure that your company gets the best deal possible.
  • Determining Leadership and Culture: Managing and working in an independent carve-out is different from working in a division or subsidiary of the parent company. A consultant will ensure that you have the right people in place for the carve-out to be both independent in operation and able to compete effectively in its relevant market segments.
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