Though the business community continues to recover from the economic collapse of 2008 and the more recent international debt crisis, the M&A market has experienced steady activity and even growth in recent months. This is principally the result of converging interests within the business community as sellers explore exit options and opportunities to downsize operations while buyers seek to acquire highvalue businesses at discounted prices. An increasingly popular transaction structure that accommodates these harmonized interests is a “carve-out transaction,” through which a company sells a stand-alone portion of its business, generally a division or subsidiary (which we will refer to in this article as a “Target Business”), to one or more acquirers. Frequently, such carve-out acquirers are private equity-backed. In an economy where cost efficiency is more crucial than ever, carve-out transactions allow sellers to divest business segments that simply do not mesh with the company’s operational focus.
Notwithstanding these economic benefits, the very nature of carve-out transactions raises a host of unique legal issues absent from more typical “whole business” M&A transactions. Aspects of the Target Business will be almost inextricably linked to the seller’s remaining business, requiring the parties to conduct significantly heightened due diligence to evaluate the viability of the Target Business. Further, once comfortable with the results of their due diligence, the parties and their counsel must engage in difficult negotiations to document the terms of their post-closing relationship, an association that is far more involved than in standard M&A deals. Though the myriad of challenges that arise will often be unique to the parties involved and their respective businesses, there are several issues that are important to recognize at the outset of any carve-out transaction.
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