With COVID-19 hitting companies financially, firms are likely to undergo restructuring by offloading business units as they look to generate cash. This is expected to result in a growing number of carve-out M&A deals. Laurence He, market head for China and Taiwan at TMF, speaks to ALB about the carve-out M&A landscape and how TMF is best-placed to help.

See the results of TMF's Cross-border Carve-outs 2020 survey here.

ALB: What is TMF’s experience in advising on carve-out M&As? Please provide a few examples of landmark carveout deals that TMF has worked on, and the specific role it played in these?

He: As the number of complex global M&A carve-out transactions increases, a gap in capability has arisen between law firms and transaction advisors who are now giving a seat at the table to the only firm TMF Group that can conquer cross-border complexity on a global scale at the local operating level. With a full-service capability in local tax compliance, HR admin and payroll and company secretarial across 120 wholly-owned offices in 85 jurisdictions worldwide, we are the answer to any buyer who asks: “why can’t I just copy what the seller is doing in each country and leave the business operations there from compliance perspective?”

I would like to provide two examples of M&A carve-out deals we recently done in the market. Example 1: Supporting a global private equity firm buying several units from one of the world’s premier transnational consumer goods companies with the comprehensive corporate secretarial services needed to support the lean, in-house legal team. Provided back-office services spanning company secretarial, directorships and accounting and tax to meet strict deal closure deadlines. Post-close, our global payroll services were added to the mix, all of which continue today. Example 2: Taking entity incorporation, started by a law firm, to the critical fully entity activation – or “operational readiness” – stage for a large global private equity firm buying a division from an international conglomerate. Comprehensive back-office solution integrated local payroll, accounting and tax and regulatory compliance with global, corporate back-office processes.

ALB: What are the challenges that PE firms and corporations face with carve-out M&A deals? In particular, what is causing delays these days?

He: Our survey highlights the scale of the challenge. Some 34% of PE firms and 27% of corporates say that their most recent cross-border carve-out was “mostly unsuccessful.” Furthermore, 19% of corporates and 24% of PE firms say that their most recent deal took longer than expected. These delays can be costly. Our research shows that the average cost overrun for a delay of more than four months is 16% – the stakes are high. Untangling a business across jurisdictions to create a fully standalone entity is no easy feat. Acquirers often miss out on practical, local advice, especially when the business operates across multiple countries and the buyer hasn’t worked in them before. To be successful, cross-border carve-outs need deep local knowledge and expertise. For buyers unfamiliar with the markets in which their acquisition operates, this can cause frustration and significant delay.

ALB: What are the most important factors to ensure the success of a carve-out M&A deal? How is TMF ideally placed to deliver on those?

He: A deep understanding of local legislation is crucial in a cross-border carve-out’s success, as is an appreciation of local culture. Buyers need to take time to engage with sellers, keep communication lines open and gain buy-in from employees, who will be critical to value creation in the new organization. Seek out specialist help to manage specific steps that are required to get the business running – from applying for business licences, opening local bank accounts and payroll tax registrations through to electronic filing applications and establishing employee benefits. In some regions, these can become the “long poles” that add complexity, delaying operational readiness if not properly managed. Buyers should also consider simplifying operations to make them more appropriate for what is likely to be a smaller business, despite retaining an international footprint. Rather than deploying a global Enterprise Resource Planning system to all countries where there isn’t a business case for system localisation, consider a straightforward outsourced solution that works from day one, enabling management to focus on strategic direction, revenue, transitional arrangements for employees and retaining customers. The results of the survey clearly demonstrate the value of preparing well when targeting a cross-border carve-out. Rigorous analysis ahead of the deal should help identify potential issues that need to be managed and fed into a detailed project plan based on realistic timeframes. This type of groundwork enables a buyer to determine where dedicated external resources will be needed to support management teams and provides a framework around which advisors and outsourcing specialists can coalesce. With 120 wholly owned offices in 85 jurisdictions worldwide, TMF Group is sophisticated to help buyers navigator the complexity of local regulations when buyers acquire a business with operations across jurisdictions. TMF Group is able to walk in seamlessly to help the buyers run the business operations pertaining to corporate secretary, bookkeeping, tax compliance and HR admin and payroll in multi-jurisdictions where the buyers take over the carve-out business from the sellers.

ALB: Can you tell us more about TMF’s M&A deal completion services?

He: We are expansion experts. We’ve been setting up companies abroad for over 30 years. Now we’re bringing those hard-won skills and expertise to bear in complex international transactions, which our business model is perfectly designed to service. We’re neither a partnership nor an affiliation of independent providers. All our experts – nearly 8,000 of them – are retained, operating from some 120 wholly-owned offices, covering the 80 or so jurisdictions that produce 95% of global GDP. And we all specialize in just one thing: getting deals over the line, on time, in dozens of countries – set up right from the start, no costly remedial action needed. As the transaction progresses to completion, working with our friends – your global transaction advisors – we set management teams free to do the thing they do best – grow businesses. That’s because we have been able to do the thing we do best: expedite global carve-outs by standing up companies on time, fully compliant with local laws and regulations and ready to trade – virtually anywhere in the world.