International Readiness for M&A Carve-Outs

An M&A carve-out transaction involving the sale or divestiture of a division or business unit from a larger company presents unique challenges where the acquired business has global operations that will be included in the deal.  Traditionally, these carve-outs are related to sales from one commercial business to another. Recently, however, the transactions relate to an existing business selling off a division to a private equity (PE) investor, creating an entirely new business in the process.  In either case, the details of the global operations of the divested business need to be addressed prior to the sale.  In the PE-backed deal, where there is now a stand-alone NewCo, it must be in a position to be fully operational and able to support a global footprint as of Day 1 post-close, including an often significant list of employees based in overseas locations. This brings us to International Readiness (IR).

What is International Readiness?

Whether absorbed into an existing business or now an independent NewCo, buy-side success is dependent on the undertaking and completion, before closing, of an effective International Readiness project.  IR project tasks typically include, but are not limited to, the following:

  • Country-by-country analysis of what entity type, if any, will be needed post-close relative to the pre-close global profile of the business being spun out.
  • Pre-close entity establishment services to ensure whatever is needed in-country has been created.
  • VAT and other indirect tax registrations are completed.
  • Required business licenses by jurisdiction have been identified and completed
  • Bank accounts have been established. In many countries, businesses cannot be legally operational until it has a bank account. Often, the licenses and registrations required cannot be approved until the account has been opened.
  • Developing a game plan to successfully migrate from the transitional service agreement (TSA). In the TSA, the seller agrees to provide the acquirer with accounting and HR support for only a limited period of time after the transaction closes.

Challenges of International Readiness

Having in-country employees presents its own raft of International Readiness challenges.  For example:

  • Employment contracts in place as of the NewCo start date.
  • Employee benefits replication and implementation.
  • Identifying the Transfer of Undertakings / Protection of Employment (TUPE) requirements where applicable. These are designed to protect employees’ rights when their work is transferred to a new employer.
  • Determine if an Employer of Record (EoR) approach can suffice.
  • If no, ensure all payroll registrations are completed and the ability to run a locally compliant payroll is in place.
  • Providing clarity around payroll requirements, which can vary greatly from country to country.

Getting Started with HSP

Providing world-class IR support as a component of our overall M&A transaction services is a specialty of HSP Group.  Our experienced team has been leading some of the world’s biggest and most successful International Readiness engagements for years.  We recognize that success requires us to have the same level of experience, expertise, and responsiveness as the rest of the project team. This includes the legal, investor, and financial due diligence professionals who are also supporting the transaction.  Our team is often brought in by an IR engagement by the investor, legal, or financial professionals already involved in the deal.

Our team of International Readiness professionals is ready to support your next IR engagement. Get in touch with our team today to learn more.

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