Many large corporations have been shedding parts of the business that aren’t driving value and growth. Big names like Quest, Johnson & Johnson, Kimberly Clark, Medtronic, HP and JDSU have all been selling assets (divisions or products) within their organizations as a strategy to re-focus on their core businesses. Most experts expect this trend to continue to increase into 2015 and beyond. So, the question facing organizations and financial buyers faced with a divestiture is how do you manage this complex separation and create a fully functional, standalone entity without wreaking havoc on your existing business?
The popular “clone and go” carve-out mentality
Walk into any successful business and you won’t be surprised if the attitude of business leaders is “this is the way it is done” and “if it isn’t broken, don’t fix it.” During a carve-out, this principle guides the thinking of most executives. Rather than taking an objective look at people, process and systems, it seems easier to “clone and go” – or duplicate the existing systems, processes and operations and implement them for the new entity. Sounds like the path of least resistance, right?
Unfortunately, nothing in a carve-out transaction is simple. And, especially given the complexities of regulatory, compliance and leadership approvals within organizations (with hefty penalties for non-compliance), trying to re-create the current state in a new organization can be extremely difficult – and sometimes unnecessary. For example, a large company might have upwards of 100 internal systems. If this large company carves out a small portion of the business, say a division or product line of 300 people, trying to implement the same level of process, systems and quality on a smaller entity could cripple the new business. If the new business doesn’t need an enterprise-sized system, implementing one could be a costly mistake.
It may sound like a rare occurrence, but it isn’t. “Clone and go” can be a viable strategy, but it is only one option available.
Prepare the new company for success
The best carve-outs take a look at what will work best for the new company given the future business objectives, target operating model, employee base and size. Ask the following questions as you prepare to divest part of the business:
|“Clone & Go” Works Well If…||Re-evaluate a “Clone & Go” Strategy If…|
Thoughtful evaluation and planning can be the difference between an efficient exit and a carve-out separation that takes too long, is over budget and puts the business at risk. Successful carve-outs have management teams that are focused on the new business, make timely decisions, designs processes to support the operating model, and works within the appropriate cost structure to support the new corporate vision.
If you are considering divesting part of your business, please contact Keith Campbell.