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Carve-outs: The new darling of M&A?

Why companies should be just as focused on selling a business as buying one

Overview

Carve-outs are becoming an important strategic tool

Companies that make a strategic decision to jettison parts of their business lines that, while strong, are no longer a key area of focus are rewarded handsomely. However, such moves typically don’t get much attention within many organizations. Too often, companies consider carve-outs only when they feel a part of its business has become too weak or troubled to keep. As a result, they either miss out on opportunities to create significant value, actively destroy value, or both. Six key actions can help companies create more value from carve-outs and, in the process, boost their competitiveness.

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Key Findings

According to Accenture Strategy research, 83 percent of companies now consider carve-outs to be an important strategic tool to drive competitiveness in the next three to five years. However, they’re still set up for carve-out failure: While one in two companies have some best practices they apply in carve-out projects, they lack the requisite skills, standard methodologies, and tools required to effectively execute them. These shortcomings lead to massive delays and budget overruns: Sixty-five percent of companies Accenture surveyed were unable to complete carve-out projects on time, and 67 percent couldn’t meet carve-out budgets. Such poor execution can erode the selling price and increase costs which, in turn, destroys value and frustrates shareholders.

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Recommendations

While there’s no master formula for successfully planning and executing a carve-out, six key actions can improve a company’s chances for success:

1. Defining the boundaries of what’s being carved out and its future relationship with ParentCo

2. Articulating a clear direction for the project—including time and budget—and what’s expected on Day 1

3. Ensuring NewCo has the functions, processes, and infrastructure to operate efficiently after the carve-out

4. Fostering strong NewCo-ParentCo collaboration and communication to minimize conflicts in objectives

5. Promoting close cooperation between the deal team and the carve-out team

6. Supporting the project’s execution with strong carve-out skills, methodologies and tools


Author
Sven Wahle

Sven Wahle

Managing Director – Accenture Strategy

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