Fission’s Strategic Approach Simplifies Corporate Carve Out
In the world of private equity corporate divestitures, mergers and acquisitions, the term “carve-out” has a rather surgical ring to it. And perhaps aptly so, when one considers the degree of precision and knowledge of the business anatomy required for a successful operation.
It is a process that can impact every department of a corporation and requires an experienced hand. You wouldn’t choose an oral surgeon to surgically remove your appendix; neither are most private equity professionals adequately experienced to execute a corporate carve out.
What do we mean by “corporate carve-out”?
Basically, in the case of a divestiture, a large corporation with diverse business units may choose to divest one of its segments. That segment is then ‘carved-out’ from the parent company and can become a “spin-off” as its own company or be acquired by a private equity firm. Divestitures can happen for many reasons. The segment may be considered non-core to the parent company and a better value as a carved out standalone business, or the parent may need revenue from the sale for higher initiative projects.
While there can be significant value achieved through corporate carve-outs, they also involve a great deal of complexity and work. The challenge lies in carefully executing a separation that will maintain the operational integrity of parent and new entity with clarity and minimal disruption and entanglements.
Private equity carve-out scenarios can vary greatly, but many new entities still rely upon the parent company for general infrastructure and operational factors. This usually requires continued provision of services from the parent company for a defined time period to allow the carved-out segment to attain independent operations.
What do we mean by “corporate carve-out”?
So, who is going to tackle all of the elements involved in a complex private equity carve-out? This is an intricate and labor-intensive process that requires the expertise of those experienced in project management. The guidance of skilled experts who can strategize and orchestrate a comprehensive plan will save both sides of the scenario in time, cost, and security.
Fission’s industry-leading team of specialists in the transformation processes of mergers, acquisitions, and divestitures successfully enable our clients to realize proposed goals, while mitigating risk. Carve-outs are intricate and labor-intensive. Fission’s strategic approach leverages our vast experience in project and program management for complex corporate carve-outs, IT carve outs, IT projects, and data migration. Our team of experts are adept at reducing project costs, alleviating common issues, and streamlining complexity by adding structure.
Fission’s approach to the carve-out process recommends the formation of a collaborative project team with pertinent members from parent, new entity, and any applicable third-party resources. Fission experts apply their skills in corporate carve-outs, IT carve-outs, data migration, and project management to deliver a successful transformation with an accelerated timeline.
Crafting a TSA requires comprehensive due diligence
When the separated business segment must still seek infrastructure and operational functions from the parent company while establishing itself, it will need to negotiate a transition services agreement (TSA).
In order to craft a TSA that will cover all the bases, it is essential to know the full scope of the separation. All pertinent parent financial history and earning potential of the new standalone, as well as any codependencies and capability gaps should be identified early. It requires scrupulous business, financial, and operational due diligence.
The TSA is an agreement between the parent company and the carve-out entity that clearly details the terms of any ongoing support and the time duration. It should state the services that the parent company will and won’t provide and identifies all costs that the carve-out company will have to bear. The goal is to minimize separation disruption and maximize the evolution of the new business so that when the TSA ends, it is ready to stand on its own. A typical TSA details a 3-18 month timeline and should be carefully outlined and signed at the start of the deal.
Why you need Fission’s strategic methodology
Corporate carve-outs can really go south if even a few areas are overlooked or handled poorly. The following summarizes some of the high-level activities that take place in a carve-out:
- Clone relevant parent company systems and apps to set up copies in the new entity’s environment.
- Identify and migrate all relevant and specific data from parent’s environment to new entity environment.
- Data validation checks must be implemented to ensure that parent data is not migrated as part of the carve-out.
- Test systems and apps of the new entity to ensure proper system functionality on day one of separation.
- Multiple rounds of testing will be conducted to simulate day-to-day system interactions and identify issues.
- Execute the final system cutover plan to begin business operations in the new business unit environment.
Fission accelerates the overall separation timeline while minimizing disruption and ensuring data accuracy along the way. By simplifying complicated processes, we help clients eliminate uncertainty and deliver an effective TSA exit.
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