One-third of global carve-out deals fail to go to plan, says TMF Group study

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The number of carve-out acquisitions is expected to rise as businesses look to restructure following the Covid-19 crisis.

New research has revealed that around a fifth of carve-outs result in millions of dollars wasted because of inefficiencies, however. A survey, commissioned by TMF Group, found that 34 per cent of senior executives from private equity firms with buy-side experience said their most recent cross-border carve-out failed to deliver on expectations, with 24 per cent saying costly overruns impacted the deal.

Where a delay resulted in increased cost, a majority of those from private equity firms (92 per cent) said it added 10 per cent or more of the original value of the deal, with 30 per cent saying more than 16 per cent.

The research comes at a time when the onset of Covid-19 will dampen deal volumes in the immediate period, but will create special situations for cash rich buyers as affected companies look to restructure their business during a period of uncertainty, according to TMF.

“We expect a significant reduction in transactions in the immediate term, but there are clearly going to be big opportunities for the cash-rich corporations and private equity firms, with the latter reported to be sitting on a record level of dry powder at the end of last year,” said Mark Weil, CEO of TMF Group.

He continued: “The unloading of business units and other assets is inevitable as management teams right across the globe look to simplify their business and de-risk their balance sheets as this human tragedy continues to unfold. But with uncertainty, comes less financial flexibility and consequently added pressure to get any carve-out opportunity right.”

“Untangling a business from its parent company across multiple jurisdictions to create a fully standalone entity can be complex. In some regions, for example, companies can run six processes in parallel, while in others, each task needs to be completed in sequence," concluded Weil.