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M&A Seller: Business Carve Out 

So you’re a Fortune 500 global manufacturer in a highly competitive industry, and the Board of Director’s says, “Clean up the business portfolio!”

Now, a series of ‘top priorities’ launch to the executives’ hit list.  In such highly competitive times, you really can’t afford to dedicate full-time personnel to manage the Prep-for-Sale, but unless you manage the transaction properly, you will dilute shareholder value.  Carve-outs are a three-step process:

Prepare for sale - assessment.  Review the entire business to identify the keys to value in the carve-out segment.  Where does the segment excel?  Market share… market growth … manufacturing operations… innovation products … global reach and footprint… personnel etc.?  Once the keys to value are identified, assess the keys to determine how to best showcase the business.

Prep-for-Sale requires an in-depth understanding of the keys to value.  Keys to value are those few critical factors that make the company great.  These can be categorized into one of five areas … people, process, plant/assets, product, or market. 

Ideally, the Company has performance statistics to prove the value.  Historical information will demonstrate the company’s ability to plan and execute programs that increase shareholder value.  Examples may include executed project plans to develop and launch new products, new factories, global expansion – on-time, on-budget, continuous improvement in business processes – e.g. reduced scrap; improved product quality etc.

In a carve-out, linkages to the parent company or divisions may be critical in day-to-day work or in the execution of programs – access to high-tech laboratories at the parent; key customer contact personnel at other divisions; resources used from the parent to build plants or expand product line etc.  Identify these linkages and anticipate the need to work around the resource requirements when the unit is divested.  One major negotiation point is always the interim services agreement or transition support. 

Organization & personnel should be evaluated to determine the changes that would be required once a business unit is divested.  Evaluation could mean identifying and reassigning hi-potential staff, or developing plans for employee retention.  Parent company staffing may also be affected when a division is divested.  Anticipate these changes as well.

Prepare for sale – plan.  Once all the issues have been identified, create the plan that will classify potential buyers for the divestiture… strategic versus financial buyer.  Planning will vary by expected type of divestiture.  If a division is likely to be absorbed into another large company, don’t bother investing in distinct infrastructure that will be scrapped when acquired – e.g. new data systems.  Invest in the key business processes that are the most valuable for a potential buyer.  Develop and implement flawless procedures in all areas that are critical to the valuation… well documented, well-trained personnel, fully implemented with key metrics reporting that demonstrate performance

Personnel and organization structure will be a major challenge.  People will have many personal concerns – continued employment, compensation, benefits, tenure and seniority, future responsibilities.  Anticipate their concerns when planning, and be proactive and always open for discussion. 

When planning, prioritize your efforts to get the most benefit early.  Your employees will appreciate your sincere efforts, and will make any transition more effective.

Prepare for sale - execute.  This will require tight project management, excellent communications, and executive attention.  If done properly, results will be well worth the effort.