The Cloven Business: Legal Complexities of Carve-outs in a Business Divestment Context

Abstract

Many companies decide to divest full business divisions or units, spanning a whole range of economic activities, as part of their strategic portfolio review. The motivation is not always the low profitability or poor performance of such businesses, but an attempt to focus on core business and enhanced competitiveness. Cash generated through such divestments could be invested in consolidating and developing the critical parts of the business and would allow the company to grow with its most strategic markets and customers. Such M&A transactions which involve separation of businesses highly integrated in the seller’s organization, are usually more complex than typical deals where the shares stock or the assets of one or more stand-alone entities are being sold /acquired. This paper aims to help the reader understand the main challenges and key success factors to consider in a complex carve-out project in order to maximize value and minimize risks for both the seller and the purchaser and particularly: • How to set –up a consistent carve-out plan • How to secure the proper and timely implementation of the carve-out and ensure the sold business is able to operate autonomously, whilst avoiding major disruptions, unforeseen costs and integration delays • How to structure the business purchase/sale agreement (“SPA”) to cover carve-out specific risks