The growth of an enterprise often requires a decision to carve out a particular business unit (branch, business department or other part of business) to another entity (carve out). In the current times, full of challenges and uncertainties but also opportunities and new possibilities, one may observe an increased activity of Polish companies in this regard (especially those belonging to international capital groups).
Challenges facing companies leading to carve-out of business
- The development of business causes some business units start to play only an auxiliary role to the company's core business.
- The ongoing process of deglobalization which results in the need to diversify supply within markets located closer to the business seat and consequently leads to the acquisition of local companies.
- The economic situation of the company pushing the management to seek additional capital and financing (e.g. in connection with the company's planned IPO or to consolidate a particular type of business into a separate entity for later sale).
- Dynamic changes in the legal and tax environment making it no longer profitable to operate the capital group in its current structure.
- A change in the company's strategy that makes it necessary to focus on a different business area.
- Organizational and structural changes resulting from other restructuring processes (e.g. acquisition of a company or group by another entity).
Potential benefits for the organization
Carving-out a business to another entity may bring a number of tangible benefits to an organization.
- Transfer of know-how and expansion of business into new areas
- The ability to manage individual business departments more efficiently
- Improving the situation of less profitable business sectors
- Acquisition of additional sources of capital and financing
- Ensuring continuity of supply considering the ongoing deglobalization
Carve out methods
Depending on the specific circumstances, objectives of the capital group or the preferences of investors, from the legal point of view the carve-out of a business may be carried out in at least several ways. The most popular options available are:
- demerger by spin-off,
- in-kind contribution of a business or an organized part thereof (OPB),
- sale of the business or OPB,
- leasing the business or OPB,
- in-kind contribution or sale of particular assets.
Each of the aforementioned methods may involve different consequences on legal, tax, accounting or administrative grounds. The choice of the appropriate form of structuring the transaction should therefore be preceded by a thorough functional, tax, legal and accounting analysis.
- Advisory on strategic transaction planning and structuring.
- Legal, tax and financial due diligence.
- Support in the valuation of the business or its individual assets – e.g. trademarks.
- Comprehensive legal, tax and accounting support at every stage of the process, including preparation of relevant documentation and transactional support.
- Securing the tax position of the participants in the carve-out (demerger) process by obtaining appropriate tax certificates and rulings.
- Assistance in carrying out a smooth reorganization of the group and post-transaction support services.
- Representing parties before tax and administrative authorities and courts.
KPMG team of experienced advisors
KPMG dedicated team offers comprehensive support in carrying out a carve-out transaction at all its stages. The versatile experience of our experts in legal, tax and business analysis will help maximize the benefits associated with this operation while minimizing the level of potential risks. During our projects we are aware of the client's time and commitment, so proper planning and management of the entire process is crucial for us.