Unlocking Value: Best Practices for Private Equity led Carve-outs

The current economic and private equity landscape has been marked by turbulence, leading businesses to re-evaluate their core operations and long-term strategies. Firms are increasingly turning to carve-outs as a popular and potent strategy to stay agile and gain a competitive edge. This trend has been driven by several factors, such as the need to streamline operations and divest non-core assets, the pursuit of growth opportunities, and the desire to optimize capital allocation. As a result, there has been a notable rise in corporate carve-outs, which involve a parent company selling off a business unit or asset to focus on its core operations. 

Private equity carve-outs were a significant portion of mergers and acquisitions (M&A) deals in the technology sector in 2022.

Here is how focus on technology during carve-outs plays an important role:
 

1. Technology prioritization during carve-outs can lead to improved financial outcomes for Private Equity firms.
2. Effective technology strategies have shown to deliver tangible benefits for Private Equity Firms during carve-outs.

Corporate carve-outs require swift and efficient separation of IT systems and operations within the first three months of the process. Without proper planning and execution, carve-outs can cause significant disruptions and even fail.

How to Navigate Complexities in Private Equity led Carve-Outs

We explore some of the top methods for technology carve-outs, which are a crucial and noteworthy aspect of carve-outs led by private equity.

1. Due Diligence: Thorough due diligence is essential to identify potential risks and challenges that may arise during the carve-out process. This includes conducting a comprehensive assessment of the technology infrastructure, identifying potential roadblocks, and developing contingency plans to mitigate risks.
2. Infrastructure Assessment: Having a clear understanding of what parts of technology infrastructure are available for the carved-out company is essential. This should include both the technology components and the human resources that run the technology. This will help in drafting the transitional agreements appropriately.
3. Operating Model Development: Ensure that the target operating model is developed and detailed fully on the technology and infrastructure aspects. The operating model should define the first 100-day plan and the implementation process.
4. Experienced Partner Selection: Ensure that the partner selected to run the tech carve-out has the requisite experience and specialization. The partner should have a strong expertise in project management and methodology, data and cloud migration, ERP skills, and change management.
5. Communication Management: Communication and transparency are key during the carve-out process. The buyer must maintain open communication channels with all stakeholders and provide regular updates on the progress of the carve-out. This includes both internal and external stakeholders, such as employees, customers, vendors.
6. Integration Planning: Ensure that the technology infrastructure is properly integrated with the buyer's existing systems and processes. This includes integrating data, applications, and workflows, as well as ensuring that the technology infrastructure is compliant with regulatory requirements.

Revolutionizing Tech Carve-Outs with Tech Mahindra’s Solutions

When it comes to private equity carve-outs, there is a lot to consider. At Tech Mahindra, we understand the complexities and challenges that come with this process. That's why we offer a range of services to support private equity firms, including due diligence, digital transformation, consulting, post-merger integration, IT strategy, data analytics, and cybersecurity. Our proven playbook approach has delivered significant results for our clients, such as a global chemical manufacturing company that achieved over 40 million in savings and a 30% reduction in operating costs over the last 5 years. Our end-to-end 24/7 support has helped many such clients achieve their business objectives and drive better financial outcomes.

Maximizing Value and Success Through Effective Execution

Technology carve-outs play a crucial role in private equity driven carve-outs. Adhering to the best practices mentioned above can enable private equity firms to navigate the carve-out process smoothly and unlock substantial value for all stakeholders. Effective communication, comprehensive due diligence, and efficient change management are vital for a successful carve-out. With the right partner and approach, technology carve-outs can yield significant returns.