Carve-outs are incredibly exciting transactions. There is an opportunity to achieve a Win-Win-Win (Triple-Win) situation among a core business, a divested organization (series of contracts, products, or businesses), and a new investor. The realigned transactions create value and reduce risks for both businesses whether on strong financial footings or struggling due to external market pressures. In addition, everyone appreciates that the carved-out entity can be more successful for their customers, employees, investors, and communities (e.g., stakeholders). MorganFranklin strives to create success for all parties to increase collective enterprise value.

Win #1: Increased Stability

For an organization looking to divest a product line or part of its business, a carve-out provides access to capital that can be reinvested in the divesting company’s core activities. The increased focus and investment on key assets will improve earnings stability and, in many instances, a business segment that may be underappreciated by the current owner will get a better valuation as a stand-alone business when its assets have more value to an aligned investor.

Win #2: Self-Actualization for the Carved-Out Business

For an organization being carved-out this is an opportunity to reset their growth strategy and define the art of the possible. Investors and company management both recognize that a realignment of strengths increases capability and profits. Management knows that the potential carved-out segments have value and could do and be more. In many instances, management simply does not have the time or luxury to focus on noncore assets because they may not align with the parent company’s business strategy, or doing so may be a detriment to the success of their overall business.

Win #3: Access to a Functioning Business for the Investor

For a new investor, buying a carved-out, working business offers them something they can jump-start to new heights. The purchased assets can flourish with added resources and focus under a new set of eyes. In addition, the risk of failure decreases compared to starting a new business because the investor is partnering with a passionate leadership team that is often personally invested in making the venture a success. The established business already has a defined customer base, an assembled workforce, intellectual property, and a proven delivery model.

Plan and Execute a Successful Carve-Out

At MorganFranklin Consulting, we value and understand the importance of ensuring that all parties find success in a carve-out transaction. Based on our experience, there are a lot of complexities associated with enabling a Win-Win-Win. We have worked with a number or organizations over the past several years to help both find and amplify shared areas of success for all parties involved and want to help you achieve a carved-out Win-Win-Win.

Our team of experts has developed a comprehensive eight-step guide to executing a successful carve-out.  It covers:

  • Divestiture strategies
  • Common complications to consider (from conflicting visions to financial statements)
  • Surviving a carve-out
  • Moving from strategy to execution

Authored by: Tom Roland, Joshua Dorries, Matt Roach

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