The carve-out transactions refers to the selling of a subsidiary, section, or even other smaller portion of a bigger commercial organization by a larger company to another.

Equity carve-out is one such equity claim that would allow the carved-out business units to improve performance by exposing them to the new capital and attracting new investors. However, there are several major challenges in any carve-out transactions that need to be addressed properly so will not jeopardizing the value creation as the main objective of such transactions. Hence with this regard the strengths of our firm has been presented in the form of carve out transactions based case study.

CASE STUDY

BFChem is a global producer of tastes, fragrances, botanicals, and ingredients based in the United States of America. BFChem employs 800 people in more than 20 countries and seems to have 40 sales offices across the globe. BFChem was considering to acquire one of its distributors in Indonesia (Target Company) with affiliates in Singapore, Malaysia and Thailand. The Target Company have other business apart from the Sillage business unit which was going to be acquired, thus the Target would need to carve-out the Sillage business for this acquisition.

HOWEVER, THERE ARE SEVERAL MAJOR CHALLENGES IN ANY CARVE-OUT TRANSACTIONS THAT NEED TO BE ADDRESSED PROPERLY SO WILL NOT JEOPARDIZING THE VALUE CREATION AS THE MAIN OBJECTIVE OF SUCH TRANSACTIONS.

Our Firm was appointed by BFChem as the buyside lead advisor to make sure that the acquisition was done in the agreed timeframe and according to the regulation. We would need to provide the best transaction structure, minimum tax exposures and at the same time a seamless process by coordinating several other supporting professionals in several countries. At the end of the day, BFChem would be able to synergise the new carve-out business unit as part of their global growth strategy.
The case study aims at engaging our clients and prospects in relation to any carve out transactions. This scenario is complicated in and of itself because of the size and complexity of the issues involved. Many of these problems may be avoided by having a welldefinedproject plan, a strong lead advisor acting as the project management office leader, and regular cadences which are geared toward achieving the target schedule and outcome. 

ISSUES ENCOUNTERED

BFChem differentiates itself by its ability to quickly execute on complex carve-out opportunities, in which one or more distributors with operators in Indonesia, Singapore, Malaysia and Thailand can be acquired. Whenever it relates to carve-out transactions, this piece discusses the basic structure of the transaction as well as critical factors for buyers or sellers to bear in mind. Possessing 800 employees across and over 20 countries allows us to make effective usage BFChem multicultural expertise even while creating substantial synergies. As nothing more than a consequence, before to marketing the assets, the seller should be ready to provide prospective purchasers with historical GAAP financial statements again for acquired business. When preparing the carve-out financial information, a number of challenging issues must be handled.

 ABOUT FINANCIAL STATEMENTS

This may be the first and perhaps most important problem that arises in every carve-out company.
The good compliance company would often have a much defined income and expense breakdown between each business unit. Nevertheless, for smaller businesses, particularly those on a tight budget, this may not be an option. In many instances, we would have to divide the cost proportionally to the income part, namely the allocation cost along with Head Office associated costs, board of director’s compensation, leasing, accounting systems, and so on.

On top of those technical issues, there are several other related issues that also need to be addressed as they are quite impacting the success of the deals as follows:

1. Benchmarking the carve out financials to other businesses in the same industry.

2. Review the connection to parents' businesses – some cost and revenue normalization as a result of related parties transactions, economies of scale in purchases, possible increased investments in IT, systems, and other infrastructures, and so on.

3. Conduct a contract review with customers, suppliers, workers, as well as other stakeholders. 

4. Review major licenses or even other recognized brands, copyrights, intangibles, etc.