Ah, the business carve-out—the corporate equivalent of helping your fully grown child move out of your house. You're proud, slightly stressed, and quietly wondering if they know how to turn on the oven. On paper, divesting a business unit may seem straightforward: define the scope, strike a deal, and hand over the reins. But behind the scenes? It's a high-stakes balancing act involving tangled systems, emotional employees, and the occasional existential crisis—all wrapped in a PowerPoint deck.
If you're on the sell side, here are five key considerations to keep chaos controlled and your sanity intact.
1) Know What You're Actually Selling
You'd be surprised how many sellers discover mid-deal that half the IP, data, or staff are shared with the parent company. In addition, the way in which you carve out unwanted entities or assets—and determine what exactly is sold, in what manner—likely affects your after-tax cash received. As a result, sellers should consider all structuring options available and any (especially the unintended) tax consequences that could result from the separation and sale before deciding on a particular type of transaction. This helps avoid having to change structures in the middle of negotiations. Spoiler: buyers don't like surprises. Except cupcakes. Cupcakes are fine.
2) Untangle the Systems (Without Pulling a Muscle)
If your ERP looks like a bowl of spaghetti, it will be difficult to explain which strand belongs to the carve-out. You'll need help from IT to separate the systems surgically. Knowing that your tax "systems" are more than just software, consider the entire tax environment in which you operate. For example, a sale of a member of a US consolidated tax filing group could affect tax attributes and recognize deferred gains and losses, along with a host of other possibilities. In addition, your method of settling balances between the sold and retained operations could trigger tax liabilities. And, it warrants a completely separate discussion if there are cross-border aspects to your operations. Pro tip: start early, document everything, and ply your IT and tax teams with lots of caffeine and praise!
3) Don't Forget About Data Privacy
The carve-out may come with customer data, employee records, and the occasional mysterious spreadsheet named "DO_NOT_DELETE_FINAL2." Make sure you're handing off only what you're legally allowed to—unless you enjoy awkward calls from regulators.
4) Think Ahead to the Transition Services Stage
You're not done after the deal closes, and the most successful sellers remain prepared to support the business for a while. The transition services agreement needs to outline a number of things, including who benefits from the valuable tax deductions that may be created, and what everyone's role will be in post-closing tax matters (such as audit control, elections and filings, transfer taxes, purchase price allocations, and more). Think of this transition stage as co-parenting—but, instead of focusing on custody schedules, the agreement covers shared logins, pre- and post-closing tax matter determinations, and Help Desk tickets.
5) Keep Calm and Communicate
During a carve-out, employees will panic, vendors will get nosy, and board and senior executives will ask you to "just wrap this up by quarter-end." Your best defense? Clear, consistent comms. And maybe a secret chocolate drawer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
