Carve-out acquisitions
March 19, 2025
by a searcher from Queen's University in Toronto, ON, Canada
Hi all - I've identified a strong target, despite being non-core for the parent company, and would appreciate any guidance / advice for executing a carve-out acquisition. What would be the key items to be mindful of while separating the operations into a standalone business? How would you recommend establishing a comprehensive transition services agreement (TSA)? Any thoughts would be greatly appreciated.
from Harvard University in Washington, DC, USA
DISCLAIMER: I have some PTSD from a carve out I integrated in my past life, and it will show in my comment :)
1. As you and many others noted, TSAs could be a real killer. Sometimes things like the ERPs or payroll software are so intertwined, that separating from them is very painful. Not only do you have to purchase new software, but transferring data from one system to another is very painful, expensive, and very error-prone.
2. As is mentioned above, you want to be mindful of true costs and profitability. Most times it is challenging to determine true EBITDA or true profitability, since there can be a lot of "peanut-butter-spreading" that could impact your carve out positively or negatively.
3. Key personnel - especially if the company has been preparing for a carve out, they could have transferred good talent to their parent entity much before they declared this entity for sale. This is regardless of the "do people want to move over" issue that has already been mentioned.
4. Rebranding takes a lot of money and effort. Even if you think there isn't much rebranding to be done, trust me - you'll find hundreds of bits and bobs that carry the parent company branding on them.
5. Sales channels & personnel - who keeps what? How intertwined were they to begin with? Are you going to inherit the sales team/person, or do they stay with the parent business? Customer service is often one big team that is a common resource too.
6. Customer motivations - how many customers were buying this product/service because they were buying something bigger from the parent company, and it just made sense to buy this from them as well? There's a chance you'd lose those customers too.
7. Resources - depending on whether its a physical product, software or service - you would need to ensure that you retain what is needed to deliver the end service well. Sometimes these resources are shared with the parent, and what transfers cannot easily be determined, because some things aren't that obvious. Some e.gs, manufacturing locations manufacturing both parent and carve-out stuff (they aren't going to sell you their manufacturing space), special engineering resources that aren't part of the core team, but provide key expertise (the parent company themselves may or may not have made this connection, so its almost impossible for you to make it with the information you'll have).
This is just the tip of carve out integration. It is most definitely a lot to take on, and my only advice would be to make sure the company is worth it, and that you are well equipped to handle integration!
Good luck!
from Harvard University in Toronto, ON, Canada
1) IT tends to be painful. Separating application licenses or migrating to new applications can take a long time. I would suggest minimum of a year on anything that isn't bog standard (you'll be fine on MSFT Office with a month or two, but if they have an ERP, HRIS, or GL, would give yourself a TON of time to extract yourself from that).
2) Building - sooner is better, but give yourself enough time (unless you are getting the building/lease with the carve-out). Buildings/space/proximity often 'create' or 'constrain' culture, so if are potentially sharing space with the parent, I would make that as short as possible (1-2 months). This isn't necessarily what you build into the TSA, just what you plan for in terms of execution.
3) Would negotiate access to key backoffice functions (the humans) for###-###-#### days if they aren't coming with the carve-out (HR, Finance, IT, etc.). These folks often have the keys to the kingdom in the context of transition - they can either make life easy or really hard. Make sure they are incented by the parent to make it easy (hold back, etc.)
4) If you have any secondary locations, particularly non-local (outside the country), make sure you have a plan for transitioning. When I was at CSI we didn't use EORs, but I would almost certainly do that nowadays - feels like while it might be a bit expensive, the simplicity is well worth the trade.
Happy to talk through this and anything else - just DM me.
-ss