Solving the Integration Challenges
Surrounding Carve-Out Transactions
by Harvard Business Review Analytic Services

TMF Group: Your Global M&A Partner

B R I E F I N G PA P E R

Solving the Integration
Challenges Surrounding
Carve-Out Transactions

Sponsored by

SPONSOR PERSPECTIVE

In the realm of mergers and acquisitions (M&A), there is no operation
more complex than the carve-out. Disentangling a business from its
parent company gives rise to a web of potential pitfalls, ranging fromstructuring the deal to ensure regulatory compliance and operational
readiness, to navigating the complex integration of people and culture.
These complexities only increase when the carve-out is part of across-border deal.
However, as companies face mounting pressure to optimize shareholder
value and deliver sustainable growth, carve-outs have become more
attractive and they have increased threefold over the past decade.
The ability of a carve-out to improve business prosperity is legitimate, but
only if both the buyer and seller do their homework beforehand to avoid
costly mistakes and delays. Missed steps will end up with the proverbial
goose being killed before laying the golden egg.
One of the main hurdles companies encounter is underestimating the timerequired to execute the various processes. Missed deadlines invariably
lead to unforeseen expenses. In fact, a 2020 survey by TMF Grouprevealed that 92% of private equity firms experiencing significant cost
overruns incurred an additional expense equivalent to at least 10% of theoriginal deal value. Transitional services agreements (TSAs) play a crucialrole in mitigating cost overruns, but on their own they are insufficient.
Buyers must meticulously plan their exit from TSAs and the subsequenttransitional period. Having a partner to support this process and ensure
a smooth transition to independence is often the best solution forcompanies to minimize what can otherwise be an overwhelming burden.
In this report from Harvard Business Review Analytic Services, newresearch underscores the significance of thorough planning, beginningwell in advance of taking a business to market, in ensuring a successful
outcome. It emphasizes that preparation is paramount in carve-out deals,
examining the requisite processes for successful integration and thegroundwork that must be laid by both parties prior to signing a deal.
Through interviews with leading industry experts, including legal experts
and M&A advisory firms, this paper offers detailed insights into the steps
that companies should take at every stage of the process.
At TMF Group, we focus on helping corporates and private equity firms
streamline every stage of their multicountry carve-outs. From the deal
structuring to the exit of the TSA, we ensure operational excellence,
shorten the dependency time on the TSA, and prepare the company for
future growth. We are pleased to sponsor this practical guide to empower
decision makers to take on the complexities of carve-outs and win.

Jan Willem van Drimmelen
Chief Commercial Officer
TMF GroupSolving the Integration
Challenges Surrounding
Carve-Out Transactions

Carve-out transactions—those deals that involve the saleof a subsidiary, unit, or division of a larger business—have increasingly gained traction in recent years and thattrend is expected to continue in 2024 as companies lookto streamline their businesses, raise capital, and avoid
expensive debt financing.
“Companies lack the flexibility that they had five years ago,” says Darcy Down,a partner at Chicago-based global law firm Baker & McKenzie LLP. “The end ofcentral banks’ zero interest rate policies has triggered a contraction in accessto capital in the public and private markets. This decreased liquidity has
increased the urgency to deal with underperforming business lines. Companies
are under increased pressure to pay down debt and rebalance and optimize
their portfolios for growth, so in addition to targeted headcount reductions,they are shedding noncore and underperforming operations, which makes
for a market that is ripe for carve-out transactions. Carve-outs have been
and will continue to be an effective tool to unlock capital and drive growth.”
Carve-outs can quickly become complicated because the assets and people
involved get severed from the seller’s payroll, accounting, finance, and otherback-office support systems, bringing an immediate operational burden
for the buyer. As a result, buyers need to pay close attention to strategies tomitigate such operational risks and ensure that there is a smooth transition tooperational readiness so that the carve-out creates business value as quickly
as possible.
“The key component of a carve-out and what makes them complicatedis the interdependence between the sold business and the seller’s retained
businesses,” Down explains. “This presents difficulty in planning for andexecuting the carve-out transaction from both a financial and operational
perspective.”

HIGHLIGHTS

Carve-out transactions—thosedeals that involve the sale of a
subsidiary, unit, or division of alarger business—have increasingly
gained traction in recent years andthat trend is expected to continue
in 2024 as companies look to
streamline their businesses, raise
capital, and avoid expensive debt
financing.

Carve-outs can quickly becomecomplicated because the assets
and people involved get severedfrom the seller’s payroll, accounting,finance, and other back-officesupport systems, bringing an
immediate operational burden forthe buyer.

Companies have found that theuse of transitional services
agreements is a necessary step
to setting themselves up for
operational readiness.

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Harvard Business Review Analytic Services“Companies are under increased pressure to pay down debt andrebalance and optimize their portfolios for growth, so in addition
to targeted headcount reductions, they are shedding noncore
and underperforming operations, which makes for a market thatis ripe for carve-out transactions,” says Darcy Down, a partner
at Baker & McKenzie LLP.

Indeed, the post-acquisition integration planning must
address filling this void involving finance, payroll, accounting,tax, and essential back-office systems that in most cases do notaccompany the assets in a carve-out deal or the newly createdlegal entity, commonly known as NewCo. Planning must also
deal with the people side of a mergers and acquisitions (M&A)
deal, such as cultural fit and employee retention efforts, whichis crucial for preserving the value of what was acquired. Not
planning for integrating a carve-out immediately may not
only cost buyers time, money, and stakeholder confidence but
also lead to employee alienation, morale issues, and retention
woes, especially if payroll isn’t met or workers feel neglected.
Losing employees can have a direct impact on clients andservice delivery that should not be underestimated.
To head off these post-acquisition challenges, acquirers areincluding transitional services agreements, or TSAs, in theirpre-deal planning. Companies have found that the use of TSAs
is a necessary step to setting themselves up for operational
readiness. TSAs are agreements between a buyer and sellerthat clearly lay out the support the buyer needs from the seller
during the transitional period. These agreements include thetimelines, scope, and price of the services necessary to thebuyer and often include transitional support for the buyer’s
back-office needs for the carve-out assets once the deal has
been completed.
This paper will explore how carve-out transactions canpose greater risks to buyers operationally if post-integrationplans are not well-crafted in advance of a deal closing. It
will seek to understand the challenges companies face fromoperational, financial, and other readiness issues if pre-dealplanning is lacking. The paper will also explore how companies
can best overcome these obstacles by planning ahead andhow the use of TSAs and hiring the right partner to support
a company through a transaction is necessary to the successof carve-out deals.

are picking and choosing the parts of the target company
that really fit their growth strategy, seeking to leave the rest
behind,” Down explains.
Being more selective at the front end of the deal can create
further complications because often the businesses/assets
being carved out are part of a larger infrastructure and haveto quickly become operational, despite being devoid of the
support system they have always relied on.
Apparent immediately is the efficiency lost when onceshared departments such as human resources, IT, accounting,tax, legal, compliance, and purchasing, among other areas,
must now be re-created in the newly spun-out entity, or
NewCo. This construction becomes readily apparent in thecarve-out’s profit and loss statement, which, once part ofa bigger entity, now stands alone. Acquiring a company
that’s already embedded within another company requires
deconstructing and then reconstructing a standalone profit
and loss statement to understand the expenses of the obtained
assets without the benefit of shared internal resources.
“One complexity of carve-out transactions comes fromhaving to tie the operations of the standalone business tothe carve-out’s financial statements,” Down explains. “Whena buyer looks at a transaction initially, they are looking tosee if it makes sense from a financial perspective. To makethe financial model accurate, however, the buyer needs tounderstand the assets and liabilities required to operate thestandalone business and any gaps between those needs andwhat the seller is willing to sell. Buyers and sellers routinely
underestimate the extent of entanglement between soldbusinesses and retained ones, as well as the supplemental
costs and business functions required to ultimately generate
the modeled financial performance for the buyer after thetransaction has closed.”
A carve-out’s financial statements can take months toprepare and come with uncertainty because there may be
accounting judgments and estimates required to calculate
the performance of the target business on a standalone
basis, she adds.
Moreover, the assets as part of a bigger entity likely had
been included in all types of operational and purchasing

Carve-Outs Are ComplicatedBuyers are being more selective when it comes to what theywant to acquire. “Buyers are more discerning, and they

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linkages, such as supply agreements, site service agreements,
and power and energy supply agreements, and the terms ofthese various agreements should be modeled in the financial
projections as part of risk mitigation, says George Casey, theglobal chairman of corporate at New York-based internationallaw firm Linklaters LLP. “You need to look at where the links ofthe existing business are broken from the rest of the businessthat is remaining and figure out how you will reestablish thelinks,” he asserts.
Meanwhile, cross-border carve-out transactions are an
entirely new dimension, Casey says. “No jurisdiction is thesame—you need to think about everything you may know andthink about what you may not know and what type of questions
you would need to ask,” he explains. “In some countries, laborlaws require works council [labor union] consultations andmissing this requirement may lead to criminal prosecution.
The structure of separating the assets and liabilities would
differ from country to country. In some jurisdictions, liabilities
will follow assets by operation of law even if the parties do
not intend to have them included in the carved-out business.
Even cultural differences may lead to misunderstandings andmistakes, and M&A professionals often have to help build abridge to address cultural differences.”
Norton Rose Fulbright, a London-based law firm, and
AlixPartners, a New York-based M&A advisory firm, surveyed
85 management, M&A, strategy, and corporate law executives
between October 2022 and April 2023 and found that the core
challenges of carve-outs, when compared to more traditional
deal types, involve the degree of integration of business units
within the group (71%), IT separation (64%), transaction
complexity (51%), and the establishment of day one readinesson the execution date (45%). FIGURE 1

If buyers fail to plan for integration, they will need to findpost-deal workarounds for all types of operational challenges,
and these tend to be costly and can come with risks. For
example, if IT infrastructure and data migration won’t becompleted by the time the deal needs to close, certain agency
or subcontracting arrangements can be put into place so thatthe seller can help the buyer operate its business during atransition period, but these arrangements come with tax,
finance, accounting, and operational complexities and

The Lure of Transitional
Service Agreements
Baker & McKenzie’s Down notes that TSAs are a critical toolfor implementation of a carve-out transaction but do not get
the same attention as other agreements at the start of thetransaction process. While buyers may not focus on TSAs at
the start of a transaction, they are always front and center by
the end of the process. It is best practice to focus on the TSA
and services schedules early and often and not to wait until
shortly before closing, Down says.
“From day one, the deal team and the integration teamshould be working together. It is important that both teams
can understand and clearly articulate the transaction’s key
strategic objectives,” she explains. “The deal team and theintegration team should align on what it is the buyer is trying
to achieve when the target business becomes part of thebuyer’s organization. Best not to wait until the deal has closed
to reach that alignment.”

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require in-depth analysis from a multifunctional and multijurisdictional perspective, according to Down.
“IT infrastructure and data migration are almost always
the longest pole in the tent, so the parties need to determine
which IT infrastructure the target business operates on, which
includes hardware and cloud infrastructure, reviewing theapplicable applications, and then determining who is going
to be tasked with developing and executing the IT separation,
migration, and integration plan for the systems, which iscostly and very time-consuming and crucial to the day-today operations,” she explains.
Another issue that surfaces frequently involves payroll andbenefits, because this work stream has a long lead time. “There
are times we’ll get to closing and aspects of payroll and benefits
won’t be set up somewhere. In the U.S., we may be able to deal
with this through a transitional services agreement, but notin all jurisdictions,” Down notes. “Best to look at things froma multi-jurisdictional perspective and make sure the buyer
is not implementing a U.S.-centric plan across the globe, butinstead considering tax, operational, and legal issues on ajurisdiction-by-jurisdiction basis.”Moreover, hastily cobbling together a patchwork solution
will not make up for a lack of preparation. “Most of the issues
that I see when there is a failure to plan ahead are resolved witharrangements that haven’t been fully thought through, andcan have negative financial, accounting, tax, or operational
implications, which cost time and money to fix and can bevalue destructive,” Down says.
Small wonder that TSAs have become such critical elementsof carve-out transactions. These agreements have become vitalbridges to normalizing operations for buyers. Under them, theseller often will continue to provide certain back office-typeservices for anywhere from 12 months to two years. These
services can include things like finance, legal and humanresources, tax functions, IT functions, and, sometimes, realestate arrangements, Down explains.
“TSAs are ubiquitous in carve-out transactions because few
buyers are ready to independently operate the target business
day one,” she continues. “TSAs also shorten the time period
between signing and closing, because rather than wait until
the parties are ready to operate independently, they have the
comfort of that support for a period after the closing.”
According to the Norton Rose Fulbright and AlixPartners
survey, TSAs are most significantly used for compliance(89%), IT (89%), legal (71%), and accounting and finance(68%) support. Other significant uses for TSAs include humanresources (29%), manufacturing (27%), purchasing (18%), andsales (16%) support. FIGURE 2“TSAs let the buyer know that it can receive certain services
for a period of time post-closing so that they have time to getup and running on their own,” Down says. “But, of course,
there is a cost. Typically, the seller doesn’t do it for free.”She says that parties heavily negotiate TSA details and terms
can vary—sometimes the seller will provide the services at costand sometimes there is a markup for the services. If the buyer
needs to extend the service beyond the initial agreement, it
may have to pay significantly higher service fees to do so. Boththe buyer and the seller are usually eager to move away fromthe TSA, since the seller may not have the same resources to
execute the services after the sale and the buyer is reluctant
to keep the seller involved in the business and keep making
additional payments after having already paid a hefty sum
for the business.
“A buyer doesn’t want the seller to operate the business forit,” Down notes. “It’s just a matter of how long it will take thebuyer to get up and running.”
However, Linklaters’ Casey notes that there are also
agreements referred to as TSAs that aren’t temporary, suchas a lease on a site that could run from 10 to 30 years or more,or supply agreements for raw materials that have a much

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longer term than a truly temporary service agreement. “It’svery important to identify what types of services you willneed on a temporary basis as part of a TSA, such as help withpayroll, and where you will need to put permanent agreements
in place that will enable the carved-out business to operateproperly,” he says.

“When parties consider a transitional
services agreement (TSA), they need
to focus on what’s after from theoutset,” says George Casey, the global
chairman of corporate at Linklaters LLP.

Operating Beyond the TSA
When the TSA comes to an end, the buyer must “fully assume
responsibility for the operations, services, and functions
previously covered under the TSA,” says Shane Goodwin,
professor of practice in the finance department at Cox Schoolof Business at Southern Methodist University in Dallas, where
he is also the associate dean for executive education andgraduate programs. “Transitioning from a TSA requires carefulplanning and execution to ensure the company can operate
effectively and grow independently. It involves strategicplanning, operational readiness, financial management,
and risk mitigation. This transition is critical to ensure thatthe acquirer can operate independently.”
Goodwin notes that there are six main areas where buyers
must ensure that they are ready to function without the TSA:
compliance, operations, employee transition and training,financial management, IT systems and security, and legal
and intellectual property (IP) considerations.
The buyer must ensure all operations are in compliancewith relevant laws and regulations without the oversight or
infrastructure of the seller. The buyer also needs to review
and fulfill any remaining contractual obligations under the
TSA, including final payments or service adjustments. For
operational independence, the buyer needs to establish or
finalize the setup of necessary IT systems, financial systems,
HR platforms, and other operational tools. It must alsotransition vendor contracts from the seller to the buyer or
establish new vendor relationships as needed; ensure all
relevant data has been migrated from the seller’s systems to thebuyer’s systems, with attention to data integrity and security;
establish processes to maintain or improve the quality of
products or services post-TSA; and negotiate and establish
new service-level agreements with vendors or partners tomaintain service quality, Goodwin explains.
Employee transition and training is important to do wellwhen a TSA ends, and buyers should implement training
programs to ensure employees are proficient in new systems,
processes, or tools that were previously managed under
the TSA, as well as clearly define roles and responsibilities
for all employees at the company post-TSA, according toGoodwin. It is also important to ensure financial reporting andmanagement systems are fully operational and independentand to adjust budgets to account for the new costs of operations
previously covered under the TSA.

Lastly, the buyer should be ready to finalize the migrationof IT systems and ensure they are fully operational, scalable,
and secure post-TSA, and to implement robust cybersecurity
measures to protect data and systems now under thecompany’s direct control. It must also ensure that all thenecessary IP rights have been properly transferred or licensed,
as needed, and assess and mitigate any legal risks associatedwith the transition, including compliance with all agreements
made during the TSA, Goodwin says.
According to Casey, “TSAs by their nature are intended to
be transitory, to help address a particular operational need or
gap for a short period of time. When parties consider a TSA,
they need to focus on what’s after from the outset.”
For example, a TSA may be put in place to enable the buyer
to set up its own payroll system or transfer the payroll to its
existing system, he adds. The buyer will need to start theprocess early on and have full coverage under the TSA toenable a smooth transition. Similarly, the buyer may need torely on the seller’s permits for a period of time, but it would
need to estimate the time needed for getting its own permits
and start the process right away so that it can independently
operate its newly acquired facilities.
There are many other issues that go into a smooth transition
after a TSA expires, such as training employees on the buyer’s
systems, setting up new control systems at the manufacturing
facilities, and hiring people for corporate functions that may becovered for a period of time under a TSA, among other things.
“Planning with respect to these integration issues initiallycovered by a TSA is paramount, and precise execution is key
to success,” Casey says.

Preparation Starts Early for
Successful Integration
Planning for a carve-out transaction really has to start wellin advance of any TSAs even being negotiated. In fact, theplanning for a successful transaction starts with the sell sideof the deal, because when the seller prepares, it will makeBriefing Paper | Solving the Integration Challenges Surrounding Carve-Out Transactions
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Harvard Business Review Analytic Services“Ideally, when a seller goes to market, they would be able to clearly
articulate the business they are selling and the perimeter of theassets and liabilities included,” Baker & McKenzie’s Down says.

integration easier for the buyer of its assets. Companies looking
to sell a unit of their business can do much of the work aheadof even putting the division on the market by organizing it
into a proper corporate structure before selling it. Doing so
enables the assets to be sold to a variety of buyers instead ofjust one buyer. This circumstance not only opens up the buyer
pool and makes the sale process easier for the seller, it alsomeans that the buyer will have an easier time integrating it
into its business.
For example, sellers can have a plan in place for any sharedassets with a potential buyer, since there is always a need towork out a deal for commercial contracts, intellectual property,
real estate, licensing agreements, and the like. These sharedassets can also be worked out in TSAs to give the buyer andseller more time to find a solution for agreements that are
already in place.
“Real estate brokers say, ‘Location, location, location,’ andM&A practitioners who work on carve-out transactions say,
‘Preparation, preparation, preparation,’” Casey says.
And preparation starts early. When a company identifies
a business line that it would like to sell, it needs to think
about the scope of the sale by exploring what is included,
understanding the demand for the asset; working with theright partners—namely legal and financial advisors, as wellas consultants and providers of administrative services—toorganize, structure, and package it as a newly created operating
business; and to simplify the experience and make the saleprocess run smoothly.
“If you do the right work upfront before you take thebusiness to the market, then it’s a much smoother, mucheasier sale process and then it’s much easier for the buyer tointegrate the business, but this involves a lot of time, effort,
and significant internal and external resources over many
months,” Casey asserts.
Down agrees. “Ideally, when a seller goes to market, theywould be able to clearly articulate the business they are selling
and the perimeter of the assets and liabilities included. They
would have carve-out financials for the standalone businessand a general sense for the types of transitional services they
expect to provide,” she explains. “They should also have astrategy for shared assets, such as commercial contracts, IP,
IT, real estate, etc. These are the issues that, if you can getahead of them, make your closing and transitional services
negotiations more efficient and streamlined and allow thebuyer to plan for post-closing integration and achieve astandalone operation faster.”
When a buyer receives the necessary information from theseller and can plan thoroughly, it may even lead to the seller
receiving more value in the sale. “Not only does it make theprocess more efficient when the seller understands and canarticulate the business they are selling but it also gives thebuyer confidence and a better understanding of what they
are buying. And this helps to increase the value the buyer iswilling to offer for the business,” Down says. “If the buyer has
to factor in the unknown, that will impact their offer price.”
According to Casey, when sellers identify a business line thatthey want to divest, take it to market too early, and try to find abuyer without putting in the upfront work, “it’s a challenge forboth the buyer and the seller since they start discovering whatworks and what doesn’t work between signing the deal andclosing the deal,” he asserts. “Everyone is playing catch-up.”
He notes that he has worked on deals where he represented
the buyer and it was clear that the seller didn’t put in enoughwork to make sure that the business it was selling was going
to be truly operational. He has even seen situations where theseller couldn’t confirm that it, in fact, owned the assets that it
was trying to carve out and sell. “When buyers identify thoseissues, it means that the seller and the sell-side team didn’t doenough to prepare the business for sale,” Casey adds.

Leveraging Due Diligence for Integration
Meanwhile, when buyers have a deal and integration teamworking together during the due diligence process, theimplication is that the integration team is part of the teamgathering information, asking questions, and making risk
assessments. “The savviest buyers leverage due diligence
for integration, because during the diligence phase of thedeal, you want to ensure that the synergies sought, and theirintegration goals, are realistic,” Down explains.
If the integration team is involved in due diligence and is
exploring things like redundancies, terminating contracts,
consolidating manufacturing facilities, or closing stores,
then the buyer can factor its findings into its purchase price,
she continues. The better the buyer’s understanding of theactions needed to achieve the post-merger integration andhow much it will cost, the more easily it can account for thosecosts in the purchase price it is willing to pay for the business.

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Once the buyer identifies key issues during due diligenceand creates plans and remedies for them, the buyer can ask
the seller to cooperate in certain actions or pay for certain
remedies during the deal documentation phase. “If buyers
wait until the deal has already closed, then it’s always going
to be on the buyer’s dime,” she notes.
Down says she has clients who engage in multiple
acquisitions each year who have very robust integration
programs in place to try to automate the process as much as
possible, and the deals go much more smoothly because of
how organized these efforts are. These clients’ integration
teams are very engaged with its deal team, “because it creates amore efficient process and increases the likelihood of realizing
synergies and overall deal value.”Southern Methodist’s Goodwin asserts that companies
are more successful at M&A when they apply the same
focus, consistency, and professionalism to it that they doto other critical disciplines. Companies that engage in M&Athematically, validate their strategic vision, are frequentacquirers, and do smaller transactions more frequently tend to
do very well, whereas the companies that engage episodicallyin M&A tend to fail and significantly underperform. “The more
you do it, the more you will build muscle memory and learn
from your mistakes,” he says. “The companies that swing
for the fences without doing a lot of M&A tend not to work
because they’re not in the market to understand the latest
transaction-related issues, and they don’t have a team that’sused to doing post-merger integrations.”
Goodwin notes that successful integration planning
may necessitate bringing in outside experts to help all the
preparation work get done. When a strategic company isacquiring a division in a carve-out, the people at the buyer
who need to work on the transaction already have demanding
day jobs and the transaction adds to that job. Hiring the rightpartners helps. “Financial advisors and outside consultants
add value from a subject matter expertise area,” Goodwin
says, “but there is the additional advantage of leveraging
their teams and having them come in and do the work that a
lot of the time companies just don’t have the resources to do.”Companies are more successful at
M&A when they apply the same focus,
consistency, and professionalism
to it that they do to other criticaldisciplines, says Shane Goodwin,
professor of practice in the financedepartment at Cox School of Businessat Southern Methodist University.

makes or breaks companies. People are key to everythingthat we do, so how you approach people, how you integrate
people, and how cultural elements are brought to life arevery important to consider in early planning,” Casey says.
“Where people run into challenges is when they don’t think
about preparation for integration ahead of time, so culturalelements are not addressed and IT systems are kept separate,and, all of a sudden, you have a business that’s running on
its own without being integrated. We have seen this withtechnology companies, industrial companies, and in otherindustries, as well.”Goodwin says that when it comes to the softer sides ofthe deal, employee communication about the deal is very
important, “because when employees learn about a sale,
their first thought isn’t going to be ‘I hope the shareholders
did well.’ It’s going to be ‘How does this impact me? Am I
going to have a spot, or will the buyer be loyal to their own
people?’ And the longer that employees are worried about
these career-altering events, the longer they are going to be
unproductive and not doing their jobs, and this will have an
impact on the organization. The integration piece aroundpeople is absolutely critical for the deal.”
For employees in the middle and lower levels of a company,
health care and other benefits going forward really make a
big difference, and the people at the top making the deal
decisions may not be thinking about the impact of an employee
losing the match on their 401(k) plan, Goodwin says. Seamless
onboarding is critical. He adds that payroll integration is
also very important since “much of the world lives paycheckto paycheck, so a missed paycheck matters to people and isreally catastrophic, because damaging relationships with
employees causes poor morale, loss of trust, and ultimately
a toxic work culture.”

Prepping for Cultural Compatibility
Carve-out transactions don’t just involve operational andfinancial considerations. Post-deal integration of what areoften footloose assets also involves cultural elements—from thebest way to welcome employees to employee communication
to the importance of employee benefits. Such softer elementsof a carve-out must be as much a focus of a buyer’s pre-dealplanning as anything else or the buyer runs the risk of failing to
get the synergies that it was hoping to obtain through the deal.
The cultural compatibility of companies is very important
to consider in a carve-out transaction “because culture is what

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Harvard Business Review Analytic Services“When we look at companies that are very successful, are permanentbuyers, and are in the market all the time buying businesses andbuilding through acquisitions, the key element to their success is
integration, early planning, and having a good team in place that’s
dedicated to integration and has a plan for day one after closing,”says Linklaters’ Casey.

Conclusion

When it comes to integration, the formula is to prepare—and to start doing so early. Integration teams should work
alongside due diligence teams to help support the transaction;plan for the integration of assets, functions, and employees;
and help get the company ready to operate on day one of thedeal closing.
“Integration is key to a successful M&A transaction,” Casey
says. “When we look at companies that are very successful, arepermanent buyers, and are in the market all the time buying
businesses and building through acquisitions, the key element
to their success is integration, early planning, and having agood team in place that’s dedicated to integration and has aplan for day one after closing.”

When it comes to carve-out transactions, planning forintegration is the key element in whether the deal will be a
success. Such post-deal planning is as important for sellers
as it is for buyers, and for both, hiring the right partners to
help can facilitate the task. The seller of the unit, division, or
business line needs to think ahead before putting the assets
on the market to ease the process for potential buyers, andbuyers need to be proactive about having a team in place
to take on this large task of integration to see synergies andvalue for the deal.
Carve-out transactions quickly become complicated because
they often involve assets dependent on a larger organization
for infrastructure such as finance systems, human resources,
IT, payroll, and other important back-office support. One
vital tool is the TSA, which can ease the transition for buyers
when it comes to operational and financial support functions.
Integration doesn’t end there, of course. There are thesofter, more human elements of a transaction, such ascommunication with employees and the cultural fit of thecompanies. These considerations can be as crucial to a deal’s
success as operational and financial ones because they centeron the workers the buyer will depend on.

Briefing Paper | Solving the Integration Challenges Surrounding Carve-Out Transactions
8

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