HOW SHOULD YOU PLAN FOR A SUCCESSFUL SALE PROCESS FOR A BUSINESS SEGMENT?
Corporate carve-outs (selling a part of the business rather than the whole business) are generally a more complex process requiring months of preparation to get right.
Its key to remember the preparation process alone can take about 3 – 18 months (depending on the complexity of the business) and starting this process well ahead of time is critical.
The process can flex based on various factors – including the size of the business being sold or the urgency to complete the transaction – but I’ve generally seen this gated process below yield the best results for our clients.
PHASE 1: STRATEGIC ASSESSMENT
Evaluate why the segment is a candidate for sale.
Reasons generally include the strategy of the overall business shifting, recouping capital to invest in other parts of the business, a mediocre long-term outlook for the segment, or a push from investors to return capital
The goal for this phase is to make a “go or no-go” decision on whether to sell the business
PHASE 2: TIMING ASSESSMENT
Understand whether NOW is the right time
Value the segment on a stand-alone basis. Evaluate recent transaction and trading comparables
If the business is likely to only have a small subset of interested buyers, study whether the potential strategic and financial buyers for the segment have recently undertaken a transaction in the space, and whether the appetite exists for another transaction
The goal for this phase is to lock in a timeline for the process
PHASE 3: TRANSITION SERVICES AGREEMENTS
Inventory all potential services and support functions that may need to be transitioned to the buyer post-close (e.g., IT, finance, HR, facilities, procurement).
Assess the seller's ability to provide each service for a transition period, including personnel requirements, third-party contracts, and potential constraints.
Develop a pricing model and cost baseline for providing each TSA service, including any potential overhead allocation or administration fees.
Identify any regulatory, data privacy, or security requirements that could impact the TSA scope or service delivery model.
Establish clear accountability and a governance structure within the seller's organization to manage TSA execution and issue resolution.
The goal is to prepare the seller's capabilities to provide a comprehensive suite of TSA services and facilitate an efficient operational separation.
PHASE 4: GO TO MARKET
Prepare a list of both strategic and financial buyers that could be interested in buying the business.
I've seen successful deals with lists as small as 5-6, and as large as 200, but generally the larger the net cast, the higher the likelihood of closing a deal and getting a better valuation.
This phase is intensive and often disruptive to operations since the segment's management team needs to be closely involved in responding to questions from buyers. A best practice is to identify other individuals from the business who can be a buffer and keep operations running.
Having either a dedicated internal team or a third-party advisor who has been working with the business from the initial stages (and can field questions) is critical to ensuring that the transaction stays on track.
Corporate carve-outs are often more intricate than selling an entire business, requiring extensive preparation and orchestration across multiple fronts.
However, with the right framework in place, these complex divestitures can be navigated successfully.