ANY THOUGHTS ON A CARVE-OUT (ALMOST "FREE" COMPANY)?
Now evaluating a carve-out from a $150+ M SaaS company ($20+ M ARR); that is, spin-off a non-core product line and small team (in this case, it's a ten-year-old SaaS product with $2 M ARR with thousands of paying customers) into a new company. Curious what special protections and agreements are important to put into place? Where do these deals typically fail? Of course, the risk can be a lot higher, but the price can be a lot lower, than buying a company outright. Thanks for any thoughts. Best, Andy
You may need to get creative about how you structure the deal - I'm considering an asset transfer (preferably) to keep myself at arm's distance from underlying liabilities associated with the parent company. They are more interested in a JDA so as to retain some level of control, though this can get messy and is letigiously intensive.
I wouldn't, for example, take a sub's corporate books rather they keep it, you buy the assets and put into a clean company with no liabilities coming forward. Sometimes, BigCo buys littleCo and X period of time goes into 'what's core' analysis and decides littleCo has to go. Great, buy the assets so you won't be surprised later down the road with any issues lingering from LittleCo. The 'spin-out' is your NewCo.
I've seen founder 'buy' their company back only to get crushed with warranty claims because the original buyer, well, screwed up. The founder should have left the shell behind, bought the ip, customer list, trademarks, etc. and combined that with a hefty indemnity from BigCo would have been way better.
Rick
Also in evaluating the carve out financials, you can pretty much assume that they have understated shared services in the SGA line.