Structuring Carve-Out Transactions: Key Deal, Environmental, Intellectual Property, and Other Considerations

Description

Acquisitions of carve-outs tend to be more complicated than acquisitions of stand-alone businesses. The seller must delineate what parts of its business are being sold and where those assets are located. Timing may be accelerated when the transaction is a competitive auction. Potential buyers may be expected to conduct due diligence and complete a carve-out transaction on an expedited basis.

Counsel should conduct an in-depth tax analysis to determine viability and preferred transaction structure. The sale will likely be structured as a dropdown of selective assets and liabilities of the parent into a new subsidiary and the sale of the stock of the new subsidiary to the buyer, or as a direct sale of selective assets and the assumption of certain liabilities by a new subsidiary of the buyer (formed to provide insulation from potential unknown contingent liabilities).

Counsel for both purchaser and seller must understand the assets, contractual rights and liabilities to include in the transaction. The seller will need to prepare stand-alone financials for the carve-out entity. Representations and warranties will focus on acquired assets and assumed liabilities, including reps regarding financial information, sufficiency, and condition of acquired assets, as well as employment terms and benefits. Careful consideration will need to be given to address environmental issues in the carved out business and to ensure intellectual property rights used in the purchased business are properly transferred or maintained.

Various services will likely need to be shared by the seller to the buyer for some period after closing. Identifying the nature of the shared services and the terms of the transitional relationship (the type of services, performance standard, time, cost, etc.) will need to be negotiated and documented in a transition services agreement.

Listen as our authoritative panel examines carve-out transactions from the perspective of both the buyer and seller. The panel will discuss planning, structuring, due diligence, and transition services concerns, as well as critical documents in a carve-out transaction.