The Stress Test Every Business Needs

6Are you planning and executing divestments for maximum value?

Paul Hammes and Subin Baral

On the heels of a major acquisition, a global medical technology services company began considering a potential carve-out. The options were either to invest more in the business in order to meet regulatory requirements, or to sell to someone else. Management decided to divest because the business had limited long-term growth potential and was inconsistent with the company’s core operations and strategy.

All aspects of the unit were carefully considered, particularly customer overlap with other parts of the portfolio, as well as its significant revenue and earnings contributions. To determine exactly which package of assets would be most attractive to potential buyers, the seller examined four different deal perimeters, carefully crafting a value story for each. Adding to the carve-out’s complexity: the business’s activities in finance, tax, information technology, and operations were interdependent with the parent across 50 countries.

Significant up-front separation planning across key functions began 8 months before signing and 11 months before close. This thorough preparation allowed the seller to continue to focus on running the business and maintaining its value along the way. The unit not only attracted both corporate and private equity buyers, but also garnered a price 12% above initial expectations. Though many complex carve-out transactions take well over one year, this transaction ...