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Specialist view
EARLY-STAGE PLANNING INCREASES TRANSACTION SECURITY AND MINIMISES PURCHASE PRICE
DISCOUNTS
Compared to traditional M&A sales, the legal structuring of the transaction (54%), the structuring of the actual carve-out (35%), and the provision of transitional
service agreement (TSA) structures (65%) are identified as key distinguishing factors by participants. Stricter warranties in respect of legal relationships material to
the carve-out business , purchase price reductions, earn-out components and additional closing conditions were some of the areas identified as being required by
buyers in light of the greater uncertainty perceived to be inherent in carve-out structures
"The carve-out, i.e. the
separation and restructuring of
the formerly non-independent
carve-out business, is an
integral part of the sale. Earlystage
planning is crucial to
align separation and
restructuring with the M&A
process and to ensure
transaction certainty.
According to the survey, prepacked
structures are preferred
- i.e. where the carve-out is
defined by the seller, made
transparent to the buyer,
agreed by way of a carve-out
plan at the time of signing of
the transaction documentation
and (largely) implemented at
the closing date."
"Whether a pre-packed or
unpacked structure is used will
determine not only the
parameters of the actual M&A
process and transaction
documentation, but also the
implementation measures
required, the stakeholders
involved, the transaction
timeline, and the level of
interaction with potential
buyers. Often, bidders for
carve-out business units
demand flexibility in structuring
the target operating
model (TOM) to realize
development or restructuring
potential and strategic goals.
Pre-packed structures allow a
degree of flexibility to
accommodate the needs of
the successful bidder."
"Given their inherent
complexity, carve-out
transactions typically involve
greater execution risks than
traditional M&A deals. Buyers
most commonly respond to
these risks with purchase
price discounts, stricter
warranty requirements with
regard to legal relationships
material to the carve-out
transaction, earn-out
components and additional
closing conditions. Welladvised
sellers can seek to
limit, or take a flexible
approach to addressing, these
demands."
"Generally (in particular in the
case of carve-out transactions
involving a cross-border
element), the transaction
documentation will be much
more complex than a
traditional sale documentation
and can give rise to a range of
legal and commercial issues.
Good planning and early-stage
preparation of the required
documentation help to avoid
bottlenecks."
"The reasons for using prepacked
structures are obvious:
legal and tax pre-structuring of
the carve-out business with the
aim of enabling a share (rather
than asset) disposal, a transaction
structure that facilitates
full implementation of the
carve-out at closing,
maximization of transaction
value and the potential time
saving of running the M&A and
carve-out processes
concurrently."
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