Delays in cross-border carve-outs add hefty surcharge – report

An increase in the number of buyouts in which corporates sell a subsidiary has been noticeable in the past year; such transactions represented around 14% of all buyouts in 2019, up from 11.5% the year before and 10% in 2017, according to Unquote Data.

And although M&A volume is currently under severe pressure, the number of carve-out acquisitions is ultimately expected to rise as businesses look to restructure in the wake of the Covid-19 turmoil.

The difficulties in executing these transactions (and the associated rewards when GPs can successfully pull it off) are well documented, but the TMF report highlights how complications that arise in cross-border processes in particular can have a tangible impact on future investment performance.

The study surveyed 200 C-suite executives at private equity firms and corporate institutions based in 29 countries, all of whom had buy-side experience of a cross-border carve-out over the past three years.

Nearly a quarter (24%) of PE firms said their most recent deal took longer than expected, which can have a knock-on effect on costs – nearly all (92%) of those experiencing delays lasting more than four months said they cost them 10% or more of the original deal value, with the average surcharge standing at 16%.

According to Larry Harding, head of TMF in North America, firms are not factoring in the three keys to carve-out success: preparation, local presence and persistence. Failure in any one of these can cause delays, create unexpected costs and kill long-term deal value, he said.

Click here to download the full report

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• Carve-out