Maximizing value in complex disposals
Disposals — those involving the separation of highly integrated businesses or business activities spread across multiple jurisdictions — are complex and difficult to achieve. The team needs to package the business and present it to bidders in a way that allows the price to be maximized. They also need to be able to implement the sale and the separation with certainty and on time, thereby avoiding unexpected problems. This requires a careful and holistic approach to planning with advisors experienced in best practice for carve-outs.
There are well developed carve-out techniques that can be deployed to break the complexities down into an efficient and manageable process. Using these techniques will enable you to obtain best value on the sale while also delivering deal certainty on a rapid timetable and holding on to the value in the retained business.
In highly integrated companies, it is often the case that the target business is largely dependent on the retained business (or vice versa), whether for products, R&D, testing, administrative services or shared locations. An essential part of the sales process is identifying and addressing these needs at an early stage and building them into the process.
These are the key features of a sales process applying best practice carve-out techniques:
1. Understanding the needs of different types of buyers as regards stand-alone functionality of the target business versus integration of the target business into the buyer’s group.
2. Understanding the stakeholders in the carve-out and the dependencies of the process on their collaboration: suppliers and customers, landlords, licensors and R&D partners, local management and employees, works councils, unions and regulators.
3. Deciding which parts of the carve-out will be implemented prior to the sale transaction and which parts will be implemented during the transaction, potentially in dialogue with the buyer.
4. Preparing an accessible plan for the separation and sale. This will: set out the transfers required on a function by function and country by country basis; be clear and comprehensive to inspire confidence in buyers; include sufficient detail to allow buyers to quantify the risks and bid a full price; retain sufficient flexibility to accommodate buyers with differing needs; and create certainty the deal can be delivered on time.
5. The plan should address the deal dynamics and needs of potential buyers, efficient tax structures for the seller and buyers, the headcount spread of the target business, real estate requirements, employee benefits, consultations and transfer techniques for employees, IP allocation and consent requirements regarding authorities and third parties. It should also address the separation of financing arrangements, in particular cash pooling, and the cash extraction steps that may be required to deliver a debt free/cash free target.
6. The plan should be used both to facilitate the buyer’s due diligence and to feed into precisely targeted deal documentation. This common understanding will allow rapid and effective negotiation of deal documents. It will minimize the risk for buyers and allow a competitive sale process to maximize value. This will allow the deal documentation to be negotiated with precision about allocation of costs and risks. It will enable the buyer to avoid value leakage at the end of the deal. It will also minimize the risk of an extended pre-closing period and allow the seller to negotiate with certainty the arrangements for closing.
7. Using the plan as a template for the closing process coupled with an effective use of project management techniques will allow the transaction to be closed in the minimum period of time. Setting up the separation plan requires the right balance of central management and local buy-in. Too much centralization can be as damaging as too much independence of the local function owners. A sophisticated communication process that makes the local function owners co-owners of the project is key.
8. This approach will minimize the risk of discovering new issues and problems in the course of implementation, which are a frequent cause of delay and value leakage. A well managed implementation process will be flexible and allow commercial solutions to be properly vetted while minimizing delays to the project timeline.