Carve Out Acquisition Risks

This topic contains 3 replies, has 4 voices, and was last updated by  Gina Miele 1 month, 3 weeks ago.

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  • #112432

    Adam Bates
    Participant

    What are the biggest risks and mitigation strategies when integrating a carve out acquisition (ie., integrating a business unit that was spun off from a larger organization)?

    #112501

    Rochelle Ramos
    Participant

    Some of the biggest risks in integrating a carve out acquisition are based around any remaining entanglement with the parent company and the complexity of identifying that during due diligence. As a carve out, what resources will they bring with them (HR, Accounting, IT) and what is actually part of the original parent company that you as the acquirer will now need to provide. Knowing the scope of the shared services, understanding the financial numbers of the deal and gracefully cutting the tie to the original parent company needs to be assessed and effectively addressed for determining success.

    #112802

    Denise Gingolaski
    Participant

    Hi Adam – one risk would be handling the incoming cash receipts after the deal closed. There will be a few months when the cash is going to the wrong bank account so it is a reconciliation issue. If it’s done poorly, the customers will be affected as well when they start to get colletion letters for non payment when it’s really just a matter of getting the cash from the former company and appying it correctly.

    Another issue can be that you might still need help from the original parent company in terms of paperwork or other information. They probably won’t have a sense of urgency to help. Of course, there’s probably an agreement to help during the integration period, but in reality, the original parent company has other things to do that may be more important.

    #113057

    Gina Miele
    Participant

    One of our most recent acquisitions was a carve out. We have faced struggles related to the old parent entity still existing and our inability to function in their systems for a period of time. There was a long pause on customer billing post-acquisition as we took the time to integrate the carved out entity into our system. There were issues surrounding ordering, since we could not just update the billing address on their current accounts with vendors. We had to ensure that they were listed as an additional location on our vendor accounts immediately. Some of these challenges led to delays in essential business operations. We also have a lack of historical records, as these records belong to the old parent company, which is still in existence. This has created barriers with running reports that we would normally use for strategic planning operations.

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