Philippe Pestanes

Carve-out: what are the keys to success?

Philippe Pestanes


Philippe Pestanes, Partner in charge of the Strategy and M&A offer, talks about carve-outs, projects regularly conducted by Wavestone for its clients, allowing the identification of best practices and the establishment of a proven methodology.

Carve-out projects have multiplied in recent months. What do these operations involve?

A carve-out corresponds to all the operations carried out in preparation for the sale of an asset of a company or group of companies.

There are several reasons why a company may decide to dispose of an asset. Firstly, it may become non-strategic in relation to other more essential activities on which the company wishes to concentrate. Secondly, the company may want to dispose of an asset to make a profit, which was particularly the case in 2020 in the context of the crisis. Finally, the asset sold may prove to be underperforming within the group, or even loss-making.

A carve-out is a very transformative operation for the company that carries it out. What are the main challenges and stakes of these operations for Wavestone's clients?

Carve-outs are both strategic and major transformations that bring many challenges for the transferring company.

The first is to define the scope of the assets to be sold. This concern, among other things, operations, employees, contracts, …. This can be complicated in a group where many synergies exist between the different activities.

Another issue is the strategy for the disposal of the asset, depending on the nature of the buyer. For example, if the buyer is a manufacturer, it is to be expected that he will have the skills to absorb the new activity. On the other hand, if the buyer is an investment fund, it will be necessary to make the business being sold as autonomous as possible. Identifying the buyer therefore determines the way in which the carve-out will be conducted.

Once the business being sold has been taken over and the sale strategy defined, it is necessary to be able to create an autonomous structure from an operational point of view in order to make it attractive to the buyer. This contributes to the continuity of the business, which is essential in this type of operation.

Finally, the last challenge of these operations is to minimize the negative impacts by limiting the disruption to the divested asset and the divesting company as much as possible, and by reassuring all the stakeholders in the project (key employees and talents, suppliers, strategic clients, etc).

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What role does Wavestone play in these strategic transactions and what expertise does it bring to the table?

Wavestone is regularly involved in this type of operation and has therefore developed a proven methodology.

The first step consists of thinking about the disposal strategy: helping clients to identify the assets to be sold, identifying all the dependencies between the asset and the parent company, finding the most efficient ways to cut these dependencies and, if necessary, setting up transition service agreements (TSAs), which are essential for securing the buyer and maximizing the success of the transaction.

The second stage concerns the operational preparation of the sale. We assist with the structuring of the actions necessary for the separation, focusing on two key dimensions. Firstly, the technological dimension; we must be able to identify all the elements inherent in the IS and provide technical solutions to make the asset being sold autonomous on these subjects. Secondly, the human dimension. A carve-out often generates questions and even stress for the teams concerned. Dialogue and change management are therefore essential to secure the operation.

Finally, the last stage concerns the execution of the carve-out. The aim is to minimize the impact on the operational business, with the Wavestone team helping to absorb the workload and identify the necessary corrective measures once the asset has been separated. Post-closure, we can assist in managing the TSA and streamlining the cost structure.

Wavestone is particularly well equipped to successfully carry out this type of operation thanks to its model: the combination of key expertise such as the mastery of support functions (HR, finance, purchasing), change management and the IT dimension (ERP, IS, infrastructure, security). We have supported this type of operation in many sectors: health, distribution, media, etc.

Has the health crisis accelerated these operations? In your opinion, will this acceleration continue? What is Wavestone's role in this dynamic?

The health crisis initially slowed down mergers, acquisitions and carve-outs. In the second half of 2020, the momentum picked up and will continue into 2021, as the context is favorable for this type of transaction. Indeed, companies are looking for cost rationalization and/or acquisitions at reasonable prices. However, this is a perennial problem that will not disappear after the crisis.

For Wavestone, the challenge is to continue to gain recognition for our expertise in these operations in order to gain more and more market share.