8 New Views on Carve-Outs

“A certain magic exists in each new beginning”*, as Hermann Hesse aptly described. A carve-out can be the chance for a fresh start, a new angle to approach the market or a novel way to create value within a company. To demystify some of the negative myths about carve-outs and to give a glimpse of what can be done to avoid undesired outcomes, we are delighted to publish 8 New Views on Carve-Outs.

The Future Of A Carve-Out Entity Does Matter To The Seller

After a carve-out, the first reaction of the RemainCo is often to go back to business as usual and discard any thought of the NewCo. However, given the state of our highly interconnected world, it has never been more dangerous to burn bridges. Dependencies concerning reputation, for example, shared brands, or operations, e.g., warranties and legal obligations, might still pose challenges. Additionally, chances to leverage upside potentials like cross-selling and joint customer connections should not be neglected.

Carve-Outs Don’t Have To Cause Dyssynergies

“Never change a working system” certainly is one of the oldest phrases in consulting. In the context of Carve-outs, this statement is directly linked to potential dyssynergies created by splitting up a business. While everybody is focused on keeping costs low, chances for simplification and value creation are often overlooked, although they may even lead to 0 net dyssynergies.

Employees Should Love Carve-Outs

Carve-outs have a bad reputation among employees, playing into the fears of degradation, loss of corporate identity and in the worst case, the job itself. Despite its perceived unpleasantness, change often brings chances for personal development, to take on new responsibilities, climb up the corporate ladder and form a new company.

Carve-Outs Do Require Strategic Thinking & Acting

When you take a look how large, international consultancies are structured, you will find that often times, they distinguish between the strategic and the operative part of Carve-outs. Sometimes, these parts are performed by separate teams. This is based on the understanding that Carve-outs are mostly a matter of project management, once the relevant decisions are taken. However, a clear-cut go-to-market model operationalized via a delicately crafted Target Operating Model can make or brake a transaction – and turn an undesirable asset into a prom queen.

Carve-Outs Can Be Implemented In Less Than 9 Months

Carve-outs can be complex matters, working on a “live” entity with many interdependencies and dire consequences in case of failure. Thus and rightfully so, Carve-outs are seldomly conducted in less than 12 months. This does not mean, however, that this is impossible. You just have to know someone who knows the shortcuts.

IT Separation Does Not Have To Be Ready At Closing

As the most complex operative part of Carve-outs nowadays, the IT part usually dictates the rhythm and timing of the project. The problem is, that it can take 24 months or more to fully separate an interconnected IT landscape. Sometimes, changing the end-state definition can make all the difference: maybe to Carve-out can be labeled successful without completing the IT part.

In A Carve-Out, Assets Do Not Have To Be Duplicated

Splitting up assets in a Carve-out can be a nightmare, especially when not only administrative buildings, but also production assets are in scope. Is a physical separation and duplication always necessary though? With sky-high real estate prices, integrated value chains, industry 4.0 at the doorstep and margins for production focused business at an all time low, sometimes “sharing is caring”.

Do Not Copy Paste Processes In A Carve-Out

“Split the company, duplicate the processes and be done with it” is a mantra heard often in the deal context. This saves time and money – why change proven processes? But just like cutting a cake, the original plate does not fit either of the newly derived parts.