Carve-out sales of business units – usually a business that is not core to the parent company's forward strategy – are used by companies to adjust strategic focus, streamline operations and increase cash. For sellers, carve-outs are expected to be an effective tool to adapt to new business and strategic realities in the aftermath of the COVID-19 pandemic. For buyers, carve-outs are an efficient approach to acquiring up-and-running operating assets to grow in scale or enter new business lines.
Our nationwide Carve-Out Transactions Group, comprising attorneys from our Mergers and Acquisitions (M&A) and Private Equity teams, has experience guiding countless buyers and sellers in carve-out transactions in a wide range of industries, giving us a head start in providing skilled counsel to clients in these transactions and helping both sides achieve their goals. Our commitment shows, with Bloomberg ranking us among the Top 20 law firms in the U.S. for mid-market transactions in its 2019 Global M&A Mid-Market Legal Advisory Rankings.
Buyers seek an accurate picture of the target, mitigation of liability and a smooth transition to a sustainable business, and sellers seek deal certainty and a clean break. Our lawyers guide buyers and sellers through best practices to plan and prepare a carve-out business for sale, as well as give buyers meaningful insight into what they are buying. In situations where a seller is soliciting multiple bids, we assist in developing a marketing package that maximizes value.
Carve-outs have unique complexities because the acquired units usually were integrated with the selling parent's operations. We understand the intricacies involved in separating an operating unit from the parent.
Our attorneys are adept at addressing the myriad separation issues in disentangling the ties between the parent and carved-out business, including issues involving business processes, ownership or use of intellectual property, real estate, information technology, tax structures, "carve-out" financial statements, regulatory issues, and assigned and split contracts, as well as labor and employment, including benefit plans. We work with clients to eliminate surprises for both parties that, if not addressed early in a transaction, can lead to substantially higher transaction costs, delayed closings or even broken deals.
A key tool in managing transaction risk is our sell-side and buy-side due diligence, which creates the factual basis for planning and executing the transaction. For sellers, effective due diligence review is key to defining the business unit being sold, identifying and preempting issues, and planning a clean break. For buyers, our due diligence review validates representations made by the seller, mitigates risk by identifying potential problem areas and helps identify elements of the business that are necessary for sustainable continuation during integration with the acquiring organization. The results of our buy-side due diligence review also inform our negotiation of transition service or licensing agreements that are essential for the buyer to operate the business immediately upon closing and until integration is completed.
We are a market leader in advising buyers, sellers and underwriters in transactions that use representation and warranty (R&W) insurance. Our lawyers regularly counsel buyers on the purchase of R&W policies and the integration of these policies into the deal, structure transactions for our sell-side clients to require the buyer to purchase R&W insurance, and advise insurers in underwriting policies and adjusting claims. This helps us eliminate or greatly reduce escrows, holdbacks and other post-closing indemnification obligations. Our work for underwriters also gives us a 360-degree view of the private equity market and best practices – an advantage we pass along to you.
Tapping long-standing relationships throughout the banking, financial and legal communities, our unique HK Deal Flow® program supplements deal-sourcing strategies, opens doors and generates leads before they hit the market. In its first eight months, this proprietary program successfully sourced more than 500 deals and made over 600 introductions for our clients.
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