Details can make or break an M&A deal, and carve outs are filled with IT details.
Carve outs can be great value creation opportunities for both sellers and buyers if they are well thought out and the separation is executed in a well-managed and orderly manner.
We have seen several deals where the lack of preparation has resulted in avoidable back and forth negotiations during diligence. This has stretched out the deal process by several months, which also strains patience and budgets.
Here is one specific example:
During diligence, we uncovered the fact that the seller could not transfer needed 3rd party software to the buyer and were able to assist our client (the buyer) with negotiating the seller paying the first $1.5 million in software licensing fees during the separation effort.
Yes, $1.5 million!
Corporate carve outs can present interesting IT and shared services challenges for both buyers and sellers. All parties need to understand the separation requirement details early in the deal process in order to develop a pragmatic separation approach, plan and cost estimates. For example, business applications being standalone versus part of comingled corporate applications can result in quite different separation approaches, plans and costs. The separation approach details will also impact software licensing requirements, transition services requirements and can sometimes impact ongoing operating costs for the standalone business and trailing costs for the selling business.
Due to the special nature of carve outs, it is dollar-wise to engage the services of an IT M&A specialist. There are many nuances related to the carve out process that IT M&A specialists can assist both sellers and buyers with to ensure a smoother transaction process and often times significant savings. Our team members dig deep to understand the details and potential hidden surprises that are not typically picked up by accounting or investment banking firms performing general deal support.
Answerport has many years of experience in providing both buy-side and sell-side M&A assistance to many companies and private equity firms. We can help you prepare for the challenge of carve out transactions to improve certainty of close and preserve value for your company during M&A transactions.
When you’re carving out, you don’t have to sweat it out.
Please email me with any questions, specific topic ideas for future blogs or to share your carve out experiences at: firstname.lastname@example.org.
About the author: John Cordio is the Founder, President & CEO of Answerport, a management and technology consulting firm. He has assisted many buy-side and sell-side executive teams with understanding and overseeing the critical intricacies of buying and selling businesses. Prior to founding Answerport, Cordio served as a senior executive with a large global consulting firm and senior executive with a large global enterprise software company.