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Carve-Out: Where Do You Start?

Carve Out

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.

Picture of Hutton Henry
Hutton Henry
Hutton has worked with Private Equity Portfolio firms and Private Equity funds since 2015. Having previously worked in post-merger integration for large firms such as Ford and HP, Hutton understands the value of finding issues prior to M&A deals. He is currently the founder of Beyond M&A and provides technology due diligence for VC, PE and corporate investors, so they understand their technology risks before entering into a deal.

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