Posted on December 4, 2020 in
Written by: David B. Honig
When a company decides to perform the carve-out before selling it, it has the opportunity to resolve problems related to asset allocation/contracts, employment, transaction and entity structure, without soliciting input from potential buyers whose wishes may not match the entity`s strategic vision. This can give companies greater leverage in negotiations and minimize the ability of potential buyers to influence the structure of the carve-out. However, to perform a carve-out before the sale, a company must bear the full cost of the carve-out. The business may incroman unnecessary costs for the creation and operation of the stand-alone business if it is unable to find a buyer. Therefore, a company that decides to enter into a carve-out before the sale of a business should be willing to manage the business as a separate entity (or liquidate the carve-out) if a sale is not completed. Given the complexity of carve-out operations, advanced and detailed planning is essential to success. Before a company embarks on a sales process or begins to dismantle one of its activities, it should devote considerable time and resources to developing a carve-out implementation strategy. In order to ensure that the issues described in this article are fully and appropriately addressed, it is important that the company involve legal, financial and accounting experts in the planning process at an early stage. Similar baskets are included in pre-concluded contracts in share purchase contracts, in which the buyer requires prior authorization from the seller for certain types of transactions. The example shows that an additional distinction between the type of transaction underlying is useful in finding a middle ground: enterprise resource management, salary processing, accounting and employee performance systems are often exploited at the enterprise level and cannot simply be “cloned” to allow a carve-out company to access these tools and functions. This means that the deal team must devote a great deal of time and effort to identifying critical services and software and ensuring that the carve-out company has what it needs to continue operating as a standalone entity or as a division of another entity immediately after the sale. This may include the introduction of a new wage settlement system, the creation of a separate performance structure and the acquisition of new software licenses across the company.