DealLawyers.com Blog

PE firms sometimes pursue multiple, simultaneous divestitures of businesses in order to quickly unlock the value of their assets.  This recent Alvarez & Marsal “white paper” addresses the challenges associated with pursuing multiple carve-outs and offers guidance on how to meet the organizational and operational challenges they present. This excerpt discusses how to achieve efficient execution of multiple divestitures:

Execution efficiency starts with the strategic sequencing of activities and strong project management. We recommend mapping out the critical path for each carve-out and looking for opportunities to reduce conflict in the tasks; for example, sequencing the timing of major IT cutovers or finance carve-out steps so they don’t all peak at the same moment.

Staggering certain closings or milestone dates may be necessary if the same team (or external advisor) is responsible for deliverables across deals. By sequencing and pacing the work, you reduce the chance of overload that could compromise Day 1 readiness on any single transaction. It’s also prudent to build contingencies into the plan.

We also focus on identifying the “known unknowns” – areas likely to be unpredictable, such as length of time to negotiate certain third-party consents or to receive regulatory clearance – and develop fall-back plans. For instance, in critical supplier contracts, we expect to agree upfront with counterparties that if a consent or split is not achieved by close, an interim arrangement (i.e. an inform-only change provision rather than requiring renegotiation) will allow operations to continue. This flexibility can prevent one delayed negotiation from stalling the entire deal.

Other topics covered in the white paper include the kind of governance and organizational structure necessary to manage the divestiture process, resource planning and prioritization, defining the scope of the businesses included in each carve-out and managing the negotiation process, and employee engagement and change management.

– John Jenkins