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What is a good framework to use for looking at a Carve-Out during a case interview

I'm through to the final stage of the PwC graduate scheme application process which is taking the form of an unstructured case interview on either an acquisition or a carve-out. I am relatively confident on the acquisitions side of things but am having trouble coming up with a framework to handle a carve-out. If anyone has any tips or pointers as to the things to look for in a carve-out case or any useful resources I would love to hear them. Thanks

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Top answer
Deleted user
on Dec 13, 2020

Hey, 

Good luck with the final stages!

Here's a simple structure to assess carve-outs. You step through 1 to 4 and work with the contents of the case to work out the best approach.

  1. Think "non-core" when you hear carve-out. That is part of the business which is non-core to the company's strategy is the best candidate for carve-out. Look for total lack of synergies in process, people and technology
  2. Consistently non-profitable/missed profit margins business unit
  3. Urgent need for liquidity (e.g. Pearson selling FT asset)
  4. Very risky business (e.g. offices in war-torn countries)

You must also think about potential buyers and associated timelines for the carve-out business:

  1. Local/Foreign buyer
  2. PE buyer vs non-PE buyer
  3. Price & Valuation
  4. Minimal/no impact on customer experience and operations
  5. Timelines

Feel free to message if you wish to discuss further or want some practice.

20
Anonymous A
on Dec 13, 2020
Thanks Adi, that's really helpful, I was also wondering if you had any ideas about the sorts of questions I may be asked. I know that it will be an 'unstructured case interview' taking around 25 minutes on one of the two topics mentioned above but am unsure of what exactly will be asked of me. thanks again :)
Ian
Coach
on Dec 13, 2020
Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success

Hi there,

Great question!

In essence, your framework needs to look to solve the question: Will the 2 parts be larger than the whole? That is, will seperating these 2 assets generate more value than they're worth together? If yes, how do we do so effectively?

So, you need to look at:

Current Costs/Benefits of Incorporated Unit

What does it bring to the joined entity in terms of higher revenues and reduced costs

What does it take away from the entity in terms of cannibalisation, inefficiencies, overhead, etc.

Value of Seperated Unit

On its own, what is this worth?

How Carve-Out

Analyze all "entertwined" aspects of the companies. IT, Organizational structure, physical assets, etc. Is it possible to split the two? What will the cost be? Is the cost of the carve-out less than the overall added value from the carveout?

Hope this helps!

Anonymous A
on Dec 13, 2020
Hi Ian, thank you for this; it's really helped me with the idea of how to structure my answer
Ian
Coach
on Dec 15, 2020
Top US BCG / MBB Coach - 5,000 sessions |Tech, Platinion, Big 4 | 9/9 personal interviews passed | 95% candidate success
My pleasure :)
Clara
Coach
on Dec 14, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

I did a lot of M&A back in the day, this brings a lot of memories

I don´t think there is a classical framework/way of thingking aobut this. 

At the end, what you need to ask yourself is, where do I get more value?

  • 2 entities separated
  • merged into one

In order to calculate that, you would look into synergies (cost and revenue), impacts, revenues, etc.

Hope it helps!

Cheers,

Clara

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