Module II· Special Situations ValuationIntermediate

Question

What valuation challenges arise in a carve-out from a larger group?

Answer

Carve-out specifics

Stand-alone cost adjustments: group allocations for IT, HR, and treasury must be replaced with realistic stand-alone costs. Typically a 1–3% margin drag.
TSA (transition services agreement): time-limited services from the seller (12–36 months) at fixed prices. Post-TSA: cost increase.
Pension split: often complex at family-controlled groups with legacy pension promises — which entitlements transfer with the business?
Customer/supplier contracts: often held at group level — the carve-out must renegotiate.
Brand & IP: a brand license or a full transfer?
Shared assets: shared plants and R&D centers — usage arrangements.

Valuation adjustment

typically a 5–15% discount to the "steady-state" valuation because of carve-out complexity.

Deep diveShow more details

Pitch tip

'The stand-alone cost penalty is the biggest carve-out valuation factor — typically a 100–300 bps margin drag in year 1.'

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