1. Define current-state operating model. Understanding current operations helps avoid surprises that could decrease deal value or delay closing.
2. Assess time required to establish new legal entities.
- Requirements to establish new legal entities vary by jurisdiction and industry, and can take over a year to complete.
- Failure to act expediently can delay establishing bank accounts, contracting with vendors, configuring systems, establishing processes, selling product and other downstream activities, and can delay (or stagger) closing.
3. Define the future operating model for the business and related separation strategy.
- An optimized future operating model can enhance deal value.
- A credible separation strategy shows buyers that the business can be separated without loss of value.
- Develop a disposition strategy for non-”Project M.” in-flight projects.
4. Determine IT requirements to operationalize new legal entities, segregate access and data, address name changes and enable separate financial reporting. IT is often the most entangled functional area and the one that requires the most lead time and it is typically the most expensive to separate. Starting early can reduce the time between sign and close, reduce complexity and cost and reduce Transitional Service Agreement (TSA) scope.
5. Align goals and objectives of carve-out management and employees to the organizational goals of the transaction.
6. Right-size the organization being transferred and establish a process to transfer employees.
- Consider the carve-out operating model and talent requirements in readiness for Day 1.
- The existing organization model is often not optimal for the future state of a carved-out business that will operate independently or be integrated into a buyer’s operations — an appropriate size optimizes costs.
7. Define TSA requirements and service delivery model. This helps buyers understand complexity and cost to operate on Day 1 and to exit TSAs; a proactive approach also helps sellers identify and remediate stranded costs.
8. Develop the stand-alone cost model. Understand costs to run components of the business that transfer with the carve-out. Identify and understand incremental costs required to run the business (e.g., non-transferring back office functions, additional applications).
9. Initiate separation planning and begin mobilizing resources.
- Most separation activities occur between signing and closing, but planning and implementing early can shorten this timeframe and help reduce the need for TSAs.
- Finance, human resources, supply chain and IT functions are typically the most affected, requiring significant planning and resources to successfully separate.
- Legal entity separation and stand-up activities impact most functions, so the seller must integrate interdependencies into planning to reduce disruptions.