When considering next level expansion, carving out certain segments of your business can be an efficient and effective way of freeing up capital for further investment into your core operations. Carve-outs can be an opportunity to release assets that aren’t necessarily serving the company or relevant to your overall growth strategy. Companies typically use carve-outs for subsidiaries that are outside the parent company’s main operational focus.

But, the carve-out process can be complex, particularly in cross-border settings – which is why engaging the right third parties to provide support is vital for success.

Carve-outs can be a useful restructuring strategy for your business and beneficial in streamlining your operations, improving cash flow as well as proving convenient for tax savings and benefits. They’re also a popular strategy when exploring cross-border opportunities, as carve-outs can act as a means to optimise balance sheets or deploy capital in anticipation of recessionary pressures.

And there’s been a COVID-related increase in the number of businesses restructuring and looking for a stronger focus on their ‘core’ business, with companies being encouraged to sell off those assets that are no longer profitable. This has resulted in increased deal activity as companies look to revaluate their business portfolio and adapt to changes within the market as a result of the global disruption.

As corporates look to reassess operations in the aftermath of the pandemic, the number of carve-outs is expected to rise as major corporates dispose of businesses that are no longer relevant to their long-term strategy. In fact, Harvard Law School reported that “H2 2020 witnessed $254 billion in private equity carve-outs, according to data from Dealogic. The momentum carried over into 2021: In H1, US$281.1 billion in such deals was recorded, a 197% year-on-year increase.” Despite carve-out deals often being more complex than standard acquisitions, buyers can have the opportunity to acquire at a lower price, which is proving an attractive option for many organisations.

Pitchbook’s 2021 US Private Equity Outlook, forecasts that carve-out deal values will hit the highest level on record this year, stating that “while many large companies are struggling, private equity firms have been raising hundreds of billions of dollars and sit on around $1 trillion in dry powder… and they are now seeking massive transactions to swiftly spend down this cash pile”.

However, strategically growing your business is a multi-layered undertaking – one that demands painstaking attention to detail and the ability to meticulously plan strategies from beginning to end. And, while buying into non-core assets can be a smart option, particularly for private equity sponsors, the legal, operational and financial aspects can be challenging, requiring expert knowledge of the design and implementation of these types of transactions.

Having an experienced partner at your side can make a huge difference between a successful transaction and a failed one. Not only will you have peace of mind that your business is operating at its fullest potential, but you can focus on the value-added aspects of restructuring, like getting the best price for your carve-out, retaining your best people and expanding your core business.

Mergers and Acquisitions (M&A) can play a key role in international expansion. And, despite increased regulation, M&A can be a good option for achieving growth within your company. Not only does it offer the potential to jump start your entrance into new markets, but also to access top talent and reduce your costs. Our International Expansion survey showed, however, that 23% of respondents carry anxiety about the execution and funding of successful M&As, with a further 17% saying M&As are one of their greatest areas of concern when it comes to international expansion.

Purchasing a fully operational ‘going concern’ can be both easier and more difficult than building your own business in a new market from scratch. There are pros and cons to each route, to be sure – but, from the aspect of next level expansion, M&A offers one of the most direct routes for exponential growth and market share.

Buying an already established business may well be considered the easy way to expand. After all, there’s already a client base, all the key staff are in place and know what they’re doing – you can hit the ground running. If you can effectively manage concerns and expectations from clients and staff, then you can be making money from day one.

But it’s important to recognise that the M&A process takes time, effort, negotiation and patience. And the risks (such as business and regional culture clashes) must be considered carefully. Rigorous planning and a well thought out post-deal integration strategy is essential to ensure the M&A process is done successfully.

Your first step should be to ensure you’ve got the right people for your M&A project – both for research and analysis of opportunities and to effectively navigate the intricacies involved.

Then, research. Unless your diversifying, you’ll be looking for a company that does what you do and matches your sensibilities. You want a company that you can easily absorb and integrate, in a market you don’t currently reach. You’ll want a company whose people you can work with – because, depending on the size of the target company, those people will be in place after completion. On the most part, this is hugely beneficial as instead of having to hire new employees, you have experienced people already working at the acquired company. However, the challenge can be integrating two different working cultures, especially in countries with a different business culture or in companies that have a strong established company culture already in place.

A common way to do this is to look at a current partner; a company providing a service you don’t with possible referral agreements already in place. But they’re a partner because, as well as being great at what they do, their culture and values align with your own. That’s a key step to success, and one of the biggest things that can go wrong in any post-M&A integration – having to merge two totally different business cultures is inherently difficult and something to be avoided.

For this reason, it’s important to manage those employees involved in M&A carefully, to ensure that they remain engaged and in their positions at the company.

Regardless of industry, country or years of operation, all organisations go through the same phases of development and evolution, until they reach either organisational maturity or dissolution. Many authors have studied this path – like Richard W. Beatty and David O. Ulrich, who analysed the phase of reinvention in mature organisations; Larry E. Greiner, who listed the five phases of growth for Harvard Business Review; or William Torbert, who offered advice on overcoming internal bureaucracies way back in 1974.

The consensus is that organisations go through an average of four or five phases throughout their existence. These are:

• the start-up (Donald L. Lester, John A. Parnell and Shawn Carraher baptised it as ‘existence’)
• growth (known as ‘survival’ by the same authors)
• maturity (Beatty, Ulrich, or Adizes)
• renewal or descent. These last two aren’t consecutive, and their order sometimes depends on the organisational analysis model. In the renewal phase, we find mature organisations try to apply solutions to be more agile and flexible in their decision making. In the descent phase, the organisation begins to weaken and isn’t able to respond to the demands of the market.

In any case, the key for any organisation is to reach maturity.

Much has been written about when a company can be classified as mature, and not all in the same vein. While some sources point to organisational maturity as the lack of connection with the market or poor responsiveness, most approaches agree that organisational maturity is the state of professionalism where the purpose, mission and values of the brand have been verbalised and internalised. When functions are standardised and tailored to profiles (with senior management are focused on strategy and middle management are closer to the day-to-day) or when a company has the necessary internal processes to guarantee efficiency and operability, especially in relation to the financial function. In short: the company operates as it’s supposed, and intended, to operate.

If there’s confusion between the maturity and descent phase, it’s because companies are sometimes in situations of stability with respect to growth and market share. It’s here that organisations have two options (which aren’t incompatible with each other) – an internal one, i.e., to undertake a renewal process; or an external one, to look for new markets and take advantage of maturity providing a competitive advantage.

Does this mean that a company that’s still in a start-up or expansion phase cannot or should not consider international expansion? Not necessarily. The characteristics inherent to the organisations in these scenarios can also be competitive advantages, particularly for the challenges posed by internationalisation (such as a more horizontal structure in which decision-making is decentralised and, therefore, faster; or the efficiency derived from fewer human resources, implying greater versatility).

If you’re a mature organisation looking to take your expansion to the next level, having a trusted third-party provider in place can be pivotal – taking care of your ongoing operations and back-office functions to allow you to focus your energies on your growth strategy.

Having a provider with best-in-class technology would also be extremely advantageous as they can help automate your processes and provide you with the real-time, consolidated data you need to effectively strategise.