Carve-Out: Where Do You Start?

At Beyond M&A, we often get involved in carve-outs from both the buy side and the sell side. For buyers, we assess the feasibility, costs, and timing of a carve-out versus management’s projections. For sellers, we help with divestment or demergers before going to market.

I enjoy carve-outs because they are complex, creative, and far more challenging than standard due diligence or IT integration in M&A. They require a mix of strategic insight, financial scrutiny, and deep technical knowledge, and it's a complex org chart/people issue.

Where to Start?

To be honest, you could write a whole book about it. So here are some high-level topics to consider, and it's fair to say in these projects, actions beat analysis.

Benchmarking & Cost Estimation

To determine feasibility, you need a benchmark:

• Firm Size & Industry – Understanding the sector and company scale helps estimate IT service costs.
• SaaS Overheads – If it’s a SaaS firm (which is often the case), assessing engineering overheads is critical.
• Growth Plans – What are the expansion plans pre- and post-demerger? How can you demonstrate benefits to a future standalone owner?

Business Processes & Policies

Technology alone isn’t enough—business processes and policies are just as critical. Key considerations include:

• Business Process Adjustments – What needs to change for the new entity to function effectively?
• Operational Dependencies – Identifying essential connections and potential friction points.

Cost Analysis & Complexity

The entire feasibility hinges on a robust cost assessment:

• Cost Books – Evaluating real cost implications versus management assumptions.
• Complexity Mapping – Pinpointing areas for smooth separation and identifying high-friction transition points.

Integration & Automation Replacement

• Corporate Automation Dependencies – How much automation needs replication or removal?
• Alternative Software – Can the smaller entity move from SAP to Notion or Monday.com without disrupting operations?
• Volume Discounts – Understanding cost increases due to the loss of enterprise-scale discounts.

Order to Cash Systems & Efficient Billing

• Billing Efficiency – Ensuring the newly separated entity has a streamlined billing system to maintain cash flow and reduce errors.
• Order to Cash Systems – Evaluating and implementing efficient order processing, invoicing, and collections to support a smooth financial transition.

Sales Automation & AI

• Sales Automation – Leveraging automation to maintain and improve sales efficiency post-carve-out.
• AI-Driven Sales Processes – Using AI to optimize lead generation, customer insights, and pipeline forecasting for sustained revenue growth.

People & Transition Planning

• IT & Engineering Staff Transition – Who moves, who stays, and how do you ensure business continuity?
• Retaining Key Staff – How do you maintain operational knowledge and expertise post-transition?

The Narrative: Making the Case for Divestment

Carve-outs are complex beasts, requiring both deep data analysis and a compelling narrative. Buyers and sellers need to be convinced that the separation makes strategic and financial sense. With the right due diligence and planning, a carve-out can unlock significant value for both parties.