You can use this to save your job.
If I only knew then, what I know now.
I was the leader of a division of a publicly-traded company, which decided to sell my division. The publicly-traded company had an effective shared services function(HR, IT, Logistics, etc.), which we utilized quite effectively.
Upon divestiture, our division needed to replicate all the shared services in the new stand-alone company(carve-out). We were acquired by a prestigious private equity firm. The sale process took right at a year, which taxed the leadership team with doing their day job(grow the business) and their 2nd day job(sell the business).
This is what I learned.
Don’t believe your external owners know more about the business than you do.
They may know leveraging debt better than you, but you know your people, your customers, your sustainable competitive advantage. And don’t sacrifice these for anything. Granted, usually, private equity advisors are the smartest people in the room. However, IQ is not EQ. And in today’s world, leadership needs EQ (and IQ).
Be realistic about the distraction that this magnitude of change creates and the fatigue that your people experience.
If it sounds too good to be true, it is. Trust your intuition.
Ask as many questions as possible to test who is competent or not. In this (and most cases), trust is a 4-letter word. We decided to implement an entirely new ERP system for $10s of millions of dollars.
We could have used the existing system and added functionality to “upgrade” the customer experience for far less money and far less customer and employee disruption. Damn it, I should have pushed the Board harder.
If you can avoid the implementation of a new Enterprise Resource Planning(ERP) system, also known as an IT system, AVOID IT!
Costs will skyrocket above projections and the systems nor the implementation are ever as good, as advertised. Keep the old system if at ALL possible and use bolt-on capabilities for the 3–5 year hold period. The next owner will want to move the business on to their ERP post-acquisition and ask this question….how many customers/employees will stay to experience the disruption of 2 ERP implementations in a ~5 year period?
Require that functional experts from the parent company representing new functions are transitioned to the carve-out/newco.
This ensures that you have expertise on the current business model and expertise in functions(Information Technology and Logistics) that did not exist previously. Otherwise, you and your team are flying blind.
You can’t replicate what you don’t know and to change the model during the carve-out period is ludicrous.
Time is the enemy under any circumstance.
Negotiate as much time on the Transition Service Agreements(TSAs) as you possibly can. No…more time! No…I really mean it, more!
Ownership wants to move swiftly….which will mean disruption to customers and employees alike. Choose to move at a fast-moderate pace allowing for mistakes and course corrections…you will be challenged by ownership to move faster.
So find fact-based experts who have done this before to provide insights. Pay them to share their knowledge.
It will be disruptive anyway, but less with more time.
Go large on costs as you will never overestimate how much it costs to carve out a business.
You will also get little support from the former mother ship. Not a criticism, just a fact. They have their own problems to solve.
Bonus: When you make an acquisition you typically want to combine the leadership teams as quickly as possible.
This is typical to leverage the strengths of both management teams and gain some cost synergies. BUT, if you are in the middle of a carve-out process, insist that the acquired business should be allowed to run separately until the carve-out is completed. Otherwise, you are quadrupling your complexity and taking unnecessary risks. You can leverage the combined management strengths and cost synergies after you stabilize the carve-out. Value creation will not be affected negatively by a few million $ savings delayed by 6–12 months.
If you don’t follow these recommendations, your outcome likely will be an exit and a public hanging by your constituents, especially if they find out you read this article.
