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Boosting carve-out sale value with holistic financial management

Grasping financial data complexity early and using a strong financial stewardship model are both keys to success in a carve-out sale.


In brief:

  • Develop an understanding of the multifaceted carve-out financials that are required by various stakeholders and how they correlate.
  • Holistic program governance of financial data required for various sets of carve-out financial statements is essential for aligned, timely execution.
  • We can help enhance carve-out value by advising on strategy, financials and operational separation.

Scores of companies look to carve-outs to enhance their competitive position, streamline operations and create value for shareholders. But for those sales to be successful, it’s vital that leaders grasp the complexity and scale of the required financial information. Early consideration of these factors can help businesses prepare for a diverse buyer pool, enhance transaction execution and ultimately increase carve-out value.

 

According to our January CEO Pulse Survey, 53% of US chief executive officers are considering divestments, spin-offs or initial public offerings in 2025. However, many companies undergoing a carve-out sale process underestimate the importance of early and comprehensive financial planning for a carve-out sale. Prioritizing this from the start leads to a more holistic financial story of not only the business to be sold, but also for the remaining business post-divestiture.

 

From our experience, we’ve seen that there are three primary steps that finance teams should focus on to prepare and execute a carve-out sale transaction.

 

1. Understand the incremental financial information that may be required to facilitate the transaction

 

Recognizing the complexity and interwoven nature of financial information is crucial to enhance value, expedite the timeline and minimize surprises in a carve-out transaction. Early preparation and alignment across the different workstreams are key to fully capitalizing on these benefits.

 

In addition to managing ongoing financial reporting for the Parent Company (ParentCo), finance teams will have to address two other separate but dependent buckets of financials as part of a carve-out sale:

Carved-out business (DivestCo)

Why it matters

To facilitate valuation, buyer due diligence and deal close, DivestCo financial information is critical for demonstrating its viability and growth potential to buyers, thereby enhancing the asset’s attractiveness and value. It’s essential for financial information prepared for DivestCo to be reconciled back to ParentCo financials to enable the integrity and completeness of the information.

Key components

Remaining business (RemainCo)

Why it matters

Understanding RemainCo’s financial profile post-divestiture is crucial to facilitate future-state capital allocation and identify value creation opportunities, in addition to the ongoing reporting requirements post-close. Transactions often result in dis-synergies, such as (1) one-time transaction costs, (2) stranded costs (i.e., costs previously allocated to DivestCo that did not transfer as part of the transaction) and (3) debt restructuring costs that should be addressed post-close.

Key components


The key question is: How do you manage and track all of this information?


2. Make sure the appropriate financial stewardship model is in place

The preferred governance structure for a carve-out sale transaction varies based on the deal’s structure, the company’s organizational setup and the separation’s key focus areas. Regardless of how the overall governance structure is set up, establishing a financial stewardship model that coordinates and manages all required financial information centrally and holistically throughout the transaction’s lifecycle is imperative. This model offers several advantages:

  • It centralizes financial information management, creating a single source of truth, which is critical given the interrelated nature of the data sets and dependencies on other carve-out workstreams, such as operational separation.
  • It facilitates and streamlines coordination across various workstreams affecting financials and consolidates inputs into one financial model.
  • It fosters an understanding of the financial implications of deal considerations, key business drivers and resulting deal value, including scenario analysis.

Implementing this approach allows company leadership to continue managing ongoing operations effectively while addressing the most critical questions during the deal lifecycle.


3. Prioritize lifecycle interdependencies and deadlines

In addition to a holistic approach to coordinate and manage all the financial information centrally, a transaction’s success also relies heavily on a well-structured execution plan that considers the timing and dependencies of every financial information need and that is aligned with the overall operational separation plan. A well-structured execution plan aligns interdependencies across all relevant workstreams and functions, enabling the seller to meet key deadlines throughout the transaction lifecycle.

Figure 2: 12-Month Timeline for Structured Carve-Out Separation

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Figure 3: 12-Month Timeline for Comprehensive Separation Process Management

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Thanks to Muhammad Ali, Senior Manager and Michael Cohen, Manager at EY Americas for their contributions to this article.

Summary

To amplify carve-out value, it’s essential for CFOs and the broader finance organizations to gain an understanding of the complexities and dependencies of financial information and the importance of proactive and holistic project planning. Implementing a financial stewardship approach for a carve-out sale enables leadership to fully understand the financial impact of every strategic, operational and deal decision. By adopting this approach, companies can better position themselves to realize the full value of the transaction.

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