Anyone with a traditional SF who acquired through a carve out ?

searcher profile

April 29, 2024

by a searcher from INSEAD in Paris, France

Hi all,
Interested in hearing about anyone's experience closing a deal through the acquisition of a business unit (not an entity per se) from a group/company (carve out).
Interested in knowing how open investors were to such deal?
Thanks.
Hugo

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Reply by a searcher
from Tufts University in Jersey City, NJ, USA
We looked at an opportunity like that and passed. It's technically workable, but there's a ton of stars that need to align for it to make sense to a buyer:

1. What is the dependence on the parent company? Direct resources? Synergies? There's likely a lot of incremental SG&A that you'll have to bring in to replicate what the subsidiary currently gets from the parent. Unless they're willing to underwrite that cost into valuation, run away.
2. Why is the parent company spinning it off? Be wary that they know something that you don't.
3. Does the subsidiary even make sense as a standalone company? Does spinning it out lower the growth ceiling or otherwise turn off a customer faucet?
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Reply by a searcher
from INSEAD in Warsaw, Poland
Hi ^redacted‌. I cant comment on how open investors would be to it. However, just a word of caution on the complexity of carve outs. Oftentimes vendor DD will describe the business unit as entirely independent but what you see later can be far from it - common systems, common people, process dependencies, contracts that need renegotiating, costs that don't reflect the entirety of support required to run the business etc. Not saying that it cant be done, but there can definitely be more dirt under the carpet.
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