Can carve-outs save companies?

After a quieter phase last year, carve-outs are again prominent in discussions. Notable recent examples include DB Schenker, Arriva, Magirus, Bosch Brake-Systems, and the Allgaier Group’s break-up due to insolvency. In the first half of 2024, 250 divestments were reported as closed, with many more in preparation. The number of distressed carve-outs has risen, with companies facing declines in sales and margins evaluating their portfolios to identify and sell loss-making activities.

Can unprofitable activities be sold at all?

Sellers must assess three factors:

Are the planned scopes marketable?
Are there competitors who can realise added value through purchase?
Are there other buyers who can turn current disadvantages into positives?

The transaction perimeter is crucial for determining marketability. Activities significantly worse positioned than competitors may be unsaleable or need to be enriched with profitable businesses. Private equity firms like Mutares or Aurelius are particularly active as buyers of standalone activities in difficult situations.

How do I get the best price?

For profitable units, a well-organised sales process is vital, including finding bidders, presenting the target transparently, and managing due diligence effectively. For less profitable parts, implementation time and value enhancement are crucial. The ‘Smart-Carve-out©’ approach aims to implement separation only when necessary, avoiding long periods and unnecessary costs. Proactively identifying and implementing value enhancement potential before going to market is essential, including eliminating corporate levies and identifying independent optimisation opportunities.

Should I wait to carry out the carve-out until the restructuring becomes necessary?

The answer is a clear ‘No’. A well-organised carve-out takes at least six to nine months, making early planning essential. The ‘transformation dual track’ approach—developing performance improvement strategies alongside carve-outs—has proven successful for many firms. In some cases, the streamlining from an internal carve-out restored profitability, negating the need for an external carve-out.

Conclusion

In the current economic situation, carve-outs are crucial for saving companies or divisions by allowing the separation and sale of unprofitable units. Despite challenges with loss-making activities, well-planned carve-outs can realise value enhancement potential and protect companies from financial difficulties. Early and strategic planning is vital for quick action in emergencies.

First published in Unternehmeredition on the 18th of September and was written by Curt-Oliver Luchtenberg.