Carve-out: definition, process, challenges and success factors

Why do companies opt for a carve-out?

A carve-out is not a spontaneous decision, but the result of strategic considerations. Companies usually pursue the following objectives:

• Strukturen verschlanken
• Portfolio optimieren
• tapping into new growth potential

Focusing on the core business

It is often changes in market conditions, technological upheavals or internal developments that make a realignment necessary. One key reason is the focus on the core business. When companies have diversified significantly in recent years, at some point the question arises as to whether all business areas still fit in with the strategic direction. Areas that are no longer at the heart of the corporate strategy or whose performance falls short of expectations are then critically scrutinized. A carve-out makes it possible to spin off these units in a targeted manner without having to abruptly close or sell them.

Reducing complexity

Carve-outs also play a decisive role in M&A (mergers and acquisitions) contexts. Companies that are preparing for an acquisition often carve out individual areas in order to sharpen their profile and/or reduce unnecessary complexity. Conversely, carve-outs are a practicable instrument for preparing individual business areas specifically for a sale. This gives potential buyers a clearly defined target with an independent structure, which makes the transaction much easier.

Capital procurement

Carve-outs are also a proven means of procuring capital. If the carved-out division is floated on the stock exchange or sold to external investors, for example, fresh capital flows into the company. This can be used to reduce debt, invest in the remaining core business or tap into new markets.

Implementing regulatory requirements

Not least, companies also use carve-outs to respond to regulatory requirements or antitrust regulations - for example in the context of mergers or in the event of conflicts with compliance requirements. In such cases, the carve-out is not only a strategic option, but may even be a necessity.
 

How does the carve-out process work?

The carve-out process is a multi-layered procedure that is far more than a technical or accounting act. With the carve-out process, companies intervene deeply in existing structures - which requires precise planning and professional implementation. The success of the carve-out depends crucially on whether it is possible to set up the carved-out division independently in organizational, legal and operational terms - without jeopardizing the day-to-day business of the parent company. This requires experience, resources and stringent project management.

These are the different phases of the carve-out process:

1st phase of the carve-out process: planning

In the planning phase of the carve-out process, companies first analyse which units are suitable for carve-out and what the new organization could look like. This involves fundamental questions:

• Which legal structure is suitable?
• Which operational functions need to be mapped independently?
• What dependencies exist with other areas of the company?

These preliminary considerations form the basis for the entire carve-out process.

2nd phase of the carve-out process: structural preparation

The structural preparation of the carve-out process follows. This phase is primarily about creating the organizational and legal conditions for the carve-out. This includes establishing a new company, drawing up contracts, clarifying tax issues and regulating intellectual property. The clean separation of financial data, IT systems and personnel structures is particularly challenging in this phase. Transitions here are often fluid and involve numerous interfaces.

3rd phase of the carve-out process: operational implementation

The actual operational implementation of the carve-out process begins with the establishment of functioning units in the carve-out company. The new organization needs its own accounting, HR and IT structures, its own reporting and sustainable governance. At the same time, employees need to be informed, supported and - where necessary - transferred to the new unit. Communication, leadership and change management play a key role in this phase, as uncertainty or a lack of orientation can quickly lead to friction.

4th phase of the carve-out process: post-carve-out

The legal and organizational spin-off is followed by the post-carve-out phase. The aim here is to stabilize the new organization, optimize processes and, if necessary, prepare for integration with the buyer or an IPO. At the same time, the parent company must close any gaps, for example in the supply chain, in service or in the workforce. This phase is often underestimated - a mistake, as it is precisely here that it is decided whether the carve-out will be profitable in the long term.

The carve-out is not an isolated project, but a dynamic process with numerous interactions. This makes overarching management all the more important - ideally by experienced external specialists who are familiar with the complexity of such transformation processes.
 

How long does a carve-out take?

The duration of a carve-out cannot be determined in general terms. It depends largely on the size of the area to be carved out, the complexity of the existing structures and the objective of the carve-out. Experience shows that a carve-out should not be a quick fix. Even with good preparation, the carve-out process usually takes several months - in complex cases even longer than a year.

A functional carve-out, in which a single business area or a sub-area such as IT is spun off, can be completed within six to nine months under favorable conditions. However, the prerequisite is that processes, systems and interfaces are clearly documented and sufficient internal resources are available.

The situation is different for more comprehensive projects - for example, when it comes to spinning off international subsidiaries, restructuring them legally and preparing them for a sale. In such cases, project durations of twelve to eighteen months are realistic. This is because, in addition to the actual separation, cultural, tax and legal peculiarities must also be taken into account.

Companies also often underestimate the time required for decision-making, coordination with the works council, the implementation of new IT systems and the conversion of internal communication. The emotional dynamics within the workforce - a carve-out often causes uncertainty due to role changes and new reporting lines - can also have an impact on the time frame.

Companies considering a carve-out should therefore draw up a resilient project plan at an early stage and work with realistic time frames. It is helpful to use external project managers or interim managers who can contribute experience from comparable projects and recognize typical bottlenecks at an early stage. This avoids delays and makes the transition to the new structure much more efficient.
 

What needs to be considered after the carve-out?

Once the carve-out has been formally completed, the actual test begins. Because the legal separation alone is not enough. The new unit now needs to be operationally stabilized, culturally consolidated and successfully positioned on the market in its new role. Many companies underestimate the follow-up phase. This can have fatal consequences, as this phase often determines whether the carve-out is successful in the long term. So what needs to be done after the carve-out

Operational and organizational measures

After the actual carve-out, the focus is initially on operational and organizational measures. Processes must prove themselves in practice, newly introduced systems must function smoothly and responsibilities must be clearly anchored. Particularly if individual functions were previously managed centrally - for example in purchasing, in IT or in HR - new roles, decision-making paths and responsibilities must now be established. This reorganization requires managers and employees alike to be highly adaptable and willing to work together.

Positioning internally and externally

Parallel to this, the new unit needs its own positioning internally and externally. After a carve-out, customers, partner companies and investors often ask themselves: What does this company stand for now? What vision is it pursuing? How does it differentiate itself from the parent company? A clear brand identity and targeted external communication with consistent messages are therefore essential - not only from a marketing perspective, but also for stakeholder trust.

Internal integration

No less important is internal integration, as the emotional side of the carve-out should not be underestimated. Many employees find themselves in a phase of reorientation after a carve-out: familiar structures fall away, management changes are imminent and work processes change. In order to counter any uncertainties and keep motivation high, it is advisable to communicate transparently, involve staff at an early stage and carry out targeted change management.

External support

In addition, the new organization often needs support - for example in building up missing skills, selecting suitable systems or establishing control mechanisms. Interim professionals can provide valuable impetus here: they provide pragmatic support during the transition, take the pressure off internal resources and help to consolidate the new structures.

The carve-out therefore does not end on the day of the legal separation. The goal of a successful carve-out has only really been achieved once the new organization can operate independently, hold its own in the market and work in a stable manner internally.
 

What challenges does a carve-out entail?

A carve-out is more than just an organizational measure. It is a profound upheaval that affects all levels of a company. Precisely because existing structures are broken up and reorganized, uncertainties, frictional losses and critical dependencies arise in many places. Anyone planning a carve-out must be aware of this: The challenges lie not only in the planning, but above all in the implementation. Here is an overview of the main challenges:

Separation of IT and process landscapes

One of the main challenges is the separation of existing IT and process landscapes. In many companies, central systems - such as for ERP, CRM, HR or finance - have grown over the years and are closely interlinked. Separating these technical infrastructures cleanly without jeopardizing ongoing operations is time-consuming. Interfaces have to be adapted, databases migrated and access rights redefined. This requires the utmost care, as errors or delays in the IT separation have a direct impact on the business viability of both units.

Personnel reorganization

Closely linked to this is the personnel reorganization. Depending on the scope of the carve-out, companies are required to reassign employees, transfer contracts and take works council involvement into account. Dealing with shared services - i.e. functions that previously served several areas simultaneously, such as purchasing or accounting - is particularly challenging. It is important to avoid duplicate structures and at the same time ensure that both organizations remain capable of acting.

Internal communication

A carve-out also poses considerable challenges at the cultural level. Employees who suddenly belong to a new company experience a profound change. Familiar hierarchies, familiar colleagues and familiar ways of working change - often more radically than initially expected. Those who do not communicate, moderate and support sufficiently during this phase can trigger demotivation, fluctuation or even open resistance. Targeted change communication is therefore essential in order to create trust and provide orientation.

Operative focus

There is also a risk of losing the operative focus. While internal project teams are working intensively on the separation, day-to-day business and customer service must continue to run smoothly. This can lead to tensions, especially in sales-related areas: Who takes care of the pipeline? How are ongoing projects managed? Who is responsible when processes come to a standstill? Clear priorities and consistent dual management are needed here.

Running costs

Not least, a carve-out is also financially challenging. The separation not only causes direct costs for consultants, IT adjustments or legal audits, but also ties up considerable resources internally. The profitability of the project depends on how consistently it is implemented and whether the planned efficiency potential can actually be leveraged.

A carve-out is a complex, risky process that works on many levels simultaneously. Without experienced leadership, clear communication and external support, even a well-intentioned carve-out is at risk of failing - or costing significantly more time and money than planned.
 

What distinguishes a carve-out in a medium-sized company from one in a corporate group?

Whether a medium-sized company or a corporate group - a carve-out presents every organization with complex tasks. However, the starting position with which both types of company begin the carve-out process is fundamentally different. While corporations usually have well-established transformation mechanisms, central project management teams and established change structures, medium-sized companies are often more agile, but also more vulnerable - especially in terms of resources and process reliability.

Carve-out in corporations

In corporations, the carve-out is usually part of an overarching strategy. Many groups have already gone through the carve-out process several times - be it as part of mergers, portfolio adjustments or international reorganizations. Accordingly, there are usually standardized process models, internal specialists and a dedicated project management office (PMO) that deals exclusively with the operational management of the carve-out process. Technological and legal expertise is available within the group or can be quickly integrated via existing consulting networks. However, this professionalism comes at a price: decisions take longer, coordination is more complex and change processes often come up against political interests.

Carve-out in SMEs

The situation in SMEs is completely different: here, the carve-out is often a one-off event that places a heavy burden on the company - in terms of personnel, organization and emotions. Processes are rarely documented, knowledge is in people's heads and many processes are heavily dependent on individual people. At the same time, paths are shorter, decision-making processes are less formalized and the willingness to implement is high. This agility in particular can be an advantage - if the carve-out is professionally supported.

The biggest challenge in SMEs is usually the lack of internal resources. There is not only a lack of capacity for project work, but often also a lack of methodical expertise in dealing with IT migrations, legal separations and tax issues. There is often no clearly defined "carve-out project manager" - responsibility lies with the management itself or is borne by a few managers in addition to the day-to-day business. This harbors risks: crucial tasks are left undone, milestones are postponed and important connections are overlooked.

At the same time, the emotional dimension of a carve-out is particularly pronounced in SMEs. Employees know each other and there are long-standing relationships, loyalties and personal ties. This is why the workforce often experiences a carve-out process as a turning point that calls identity and belonging into question. This requires a great deal of sensitivity and clear, reliable communication.

It is precisely because medium-sized companies often don't have a second chance in such processes that cooperation with experienced interim professionals is particularly valuable. They contribute the necessary expertise, take the pressure off management, structure the process and help to avoid typical mistakes. This allows the agility of SMEs to be combined with the professionalism of a corporate group - a combination that makes carve-outs in SMEs particularly successful.
 

What role do interim professionals play in a carve-out?

Carve-outs are complex projects with high strategic relevance and a tight timeframe. They require clear leadership, technical depth and methodological security - often under enormous operational pressure. Many companies reach their limits here. Not because they lack the technical expertise, but because they simply do not have the capacity to manage such a transformation project in addition to their day-to-day business. This is where interim professionals come into play. As flexible, experienced and highly specialized experts, they not only accompany the carve-out, but are often instrumental in the success of the carve-out process.

There are many ways in which external experts can be deployed. They are particularly in demand in project management. Interim project managers take on the overall coordination, create structures, define milestones and ensure that the carve-out takes place on time, within the planned budget and with a clear focus on objectives. They are sparring partners for the management, moderators between the specialist departments and drivers in day-to-day project work.

Interim professionals also make a valuable contribution in the central support functions. In the area of finance, for example, they take care of the separation of accounting and controlling systems, the establishment of new reporting structures or the tax optimization of the spin-off. In IT, they ensure a clean system migration, define new user roles and ensure data protection and compliance. In human resources, they support the transition of employment relationships, develop communication strategies for the workforce and moderate negotiations with the works council.

Another advantage lies in the independence of external experts. They are not part of existing power structures, do not pursue internal career goals and bring an objective outside perspective. This allows them to address uncomfortable topics openly, recognize conflicts early on and demand the necessary willingness to change - regardless of internal sensitivities. Added to this is their experience: Interim professionals who have accompanied carve-outs in various industries, company sizes and constellations recognize typical pitfalls more quickly, can contribute proven best practices and develop individual solutions. This experience is invaluable for companies - especially when there is little internal routine with comparable change processes.

Interim professionals bring precisely what often causes carve-outs to fail due to a lack of time, expertise and implementation strength. They make complexity manageable and create trust. What's more, they not only initiate the carve-out process, but also bring it to a successful conclusion.
 

What does a carve-out cost?

The question of the costs of a carve-out cannot be answered in general terms. This is because the actual costs depend heavily on the scope, complexity and objectives of the project. Nevertheless, one thing can be said: A carve-out is usually associated with considerable direct and indirect costs - especially if it is not properly prepared and professionally implemented.

The direct costs initially include the expenses for legal, tax and business advice. Specialist lawyers and tax experts are required as soon as a business unit is transferred to a new legal entity. There are also IT-related expenses: systems have to be separated, data migrated, licenses adapted and new infrastructures set up. This is a cost-intensive and technically demanding part of the project, particularly in the case of highly integrated IT landscapes.

Another major cost block arises from the internal commitment of resources. Because employees from Finance, HR, IT and Operations are usually involved in the project, they are only available for day-to-day business to a limited extent. This causes indirect costs due to efficiency losses. If this is not compensated for, for example by using external support, not only does the project fall behind schedule, but the operational business also suffers noticeably.

In addition, there are investments in the new unit: new managers need to be recruited, teams need to be set up and structures need to be established. Communication, training and change measures cause further costs. However, such measures are essential in order to create acceptance and make the new company operational.

Despite these expenses, a carve-out is not necessarily a cost factor, but can prove to be very economically viable in the long term. This is because it creates transparency about cost structures, makes inefficient processes visible and enables strategic decisions that would otherwise have been lost in the corporate structure. A well-planned carve-out can therefore not only strengthen the market position of both units, but also generate real added value.

In any case, it is important to draw up a reliable economic efficiency calculation at an early stage - with realistic assumptions regarding costs, potential savings and medium to long-term earnings.
 

What legal aspects are important in a carve-out?

A carve-out is not only a business and organizational project, but also always a complex legal process. This is because, as soon as the carve-out of a part of a company is imminent, numerous regulations from company law, employment law, tax law and data protection law come into play. Proper legal structuring is therefore essential - both to safeguard the companies involved and to protect employees and business partners.

At the heart of many carve-outs is the reorganization under company law. Among other things, this raises the question of what legal form the new entity should take - such as a GmbH, AG or SE - and how the shareholding structure should be structured. The choice of a suitable structure has far-reaching consequences, for example for tax obligations, governance requirements and capital procurement. Close coordination with legal and tax experts is essential here.

Another key aspect relates to employment law. In many cases, employees move from the previous organization to the new company as part of a so-called transfer of business pursuant to Section 613a BGB. This means that existing employment contracts generally remain in place, even if the employer changes. Dismissals by the employer for this reason are not permitted. At the same time, the employees affected have the right to object, which in turn can lead to gaps in personnel at the new company. This makes early, transparent and legally compliant communication all the more important - including with the works council and other co-determination bodies.

Numerous contractual issues also need to be clarified. These include service agreements, license agreements, supplier relationships and framework agreements with customers. Contracts often need to be adapted, transferred or renegotiated. Depending on how closely the outsourced area was intertwined with the previous organization, this can entail considerable legal expenses.

Not to be underestimated is also the issue of data protection. When personal data, such as that of employees, customers and partners, is transferred to the new organization, all GDPR requirements must be met. This includes compliance with information obligations, lawful processing, technical security and the conclusion of suitable contracts for order processing.

The legal requirements increase considerably once again, especially in international constellations - for example, if the carve-out is cross-border or group units in several jurisdictions are affected. Different labor and tax law frameworks, currency and accounting issues as well as local reporting obligations make legal coordination a challenging task.

A successful carve-out requires sound legal support from the outset. It forms the backbone of the entire process and protects companies from later risks that may arise from negligence or legal ambiguities.
 

Carve-outs succeed - with a clear strategy and external support

A carve-out is a strategic change that deeply affects the DNA of a company. When you carve out a business unit, you not only change structures, processes and responsibilities, but also mindsets, responsibilities and corporate goals. For the carve-out process to succeed, you need clarity about the why, a well thought-out approach and, above all, the right people in the right places. The challenges are manifold: legal complexity, technological separation, cultural upheaval and economic pressure all come together in a tight time frame. Anyone who relies exclusively on internal resources in such a scenario risks being overwhelmed, delays or making the wrong strategic decisions. At the same time, a carve-out offers great opportunities: for value enhancement, market profiling and organizational development.

This is precisely where the added value of experienced interim professionals comes into play: they not only bring expertise in project management, IT, finance, HR or change management, but also a feel for the dynamics of a transformation process. They work in a results-oriented, independent and solution-focused manner - and thus ideally complement the company's perspective.

A well-prepared and professionally implemented carve-out not only strengthens the outsourced unit, but also the remaining organization. It creates clarity about roles, efficiency in processes and the ability to act strategically. And it sends a signal - both internally and externally: this company is prepared to change in order to remain fit for the future. If you want to seize this opportunity, you not only need courage, but also partners who are at your side with experience, clarity and implementation strength.

Is your company due for a carve-out? We will work with you to find the right interim professional for the carve-out project. Simply get in touch with us!