Success factors in the preparation and implementation of carve-outs
In view of the large number of stumbling blocks and special issues in A&D carve-outs, which we have already dealt with in Part I (regulatory hurdles) and Part II (structuring of the transaction and operative unbundling), careful preparation is the key to success. Many carve-outs fail or do not deliver the expected value because companies underestimate the complexity. Without strategic planning, there are delays and unexpected costs, a lack of transparency leads to uncertainty among employees and customers, which can provoke departures and loss of sales, or an unsuitable investor is chosen who cannot successfully develop the business. Best practices and success factors for overcoming these risks are therefore described below.
Early project planning and interdisciplinary team
A carve-out should be organised as an independent project with sufficient lead time. Ideally, a dedicated team is set up that brings together experts from all relevant areas - M&A lawyers, export control and foreign trade experts, IT specialists, HR/employment law, tax, finance and communications. This team creates a comprehensive carve-out roadmap that identifies all dependencies and milestones, such as regulatory approvals, IT migration dates, staff transitions, customer communications, etc. A realistic timeline is essential especially because certain official procedures take time (investment control, export licences, security checks). It is also important to schedule a possible signing and closing at an early stage and to be contractually flexible to be able to absorb delays.
Thorough due diligence and clear definition of the scope of the carve-out
A common mistake is that the business unit to be sold is not defined clearly enough. However, all assets, contracts, liabilities and functions belonging to the carve-out unit must be identified. It must also be decided which interfaces with the old company will remain (e.g. joint use of a brand or continued business contact as a supplier/customer after the carve-out). All these points should be included in a transaction-specific due diligence so that overlooked items are not left behind and all necessary elements are included. This also incorporates preparing the balance sheet and financial information of the carve-out area separately (carve-out financials) so that buyers and investors can assess the economic situation transparently. A clear demarcation increases the transaction value because the buyer can see that the target company is capable of acting independently.
Communication and stakeholder management
Employees, customers and suppliers should not only find out about the spin-off when it is finalised. A communication concept helps to minimise rumours and uncertainties. Key employees should be involved at an early stage and, if possible, retained (e.g. through retention bonuses) to avoid a loss of expertise. Customers - especially government clients - must be informed why the carve-out is taking place and how continuity can be guaranteed. An open approach to co-determination bodies (works council) is also advisable; in Germany in particular, works councils cannot prevent a carve-out, but they do have information and consultation rights, the disregard of which would contaminate the climate. Overall, transparent and proactive internal and external communication allays fears and creates trust, which ultimately stabilises the value of the carved-out unit.
Early regulatory clarification and roadmap
The approval processes (foreign investment clearance, export control notices, antitrust clearance if applicable, etc.) should be driven forward in parallel with the sales process. It is advisable to hold informal preliminary talks with the relevant authorities before signing to identify any concerns and work out solutions. For example, possible mitigation measures (commitments, side letters) can be discussed in advance in the investment control department. All necessary applications (e.g. for a clearance certificate from the BMWK) should be submitted immediately after the contract is signed to keep the clock ticking. A clear regulatory timetable, agreed with the buyer and authorities, increases planning security. The purchase agreement must offer sufficient flexibility: for example, extension options for long stop dates and, if necessary, cancellation rights or adjustment clauses if conditions are imposed (e.g. reduction of the purchase price in the event of very strict conditions, or the obligation of the buyer to fulfil certain conditions).
Operational transitional planning
The operational readiness of the new unit should be ensured even before the carve-out closing. This includes the appointment of an experienced management team for the carved-out company, which should ideally have helped prepare the transition. In addition, in-house core functions (IT systems, accounting, compliance) should be established as far as possible to minimise reliance on TSAs. Where TSAs are unavoidable, clear exit strategies should be defined so that the new organisation does not remain dependent. One success factor here is to carry out simulation runs or “Day 1 readiness” tests: What happens on the first day after the transition? Do all payments work, are all employee access points available, do critical production systems run independently? Such integration or separation tests make it possible to close gaps at an early stage.
Suitable group of buyers and negotiation strategy
Ultimately, the success of a carve-out depends largely on finding the right buyer or investor. Not every bidder has the necessary expertise or long-term interest to successfully develop an aerospace or defence division. Here, the selling company should consider whether a strategic buyer (e.g. a sector company that can leverage synergies) or a financial investor (e.g. private equity fund with experience in the sector) is the better partner. Both have different expectations and strengths: strategists often offer industrial synergies and know the business, which can mitigate integration risks; financial investors bring capital and a focus on value creation, but usually require detailed transformation plans. A common best practice approach is to sound out selected potential buyers (“limited auction”) before the official sales process to find out who is seriously interested and has good references for complex carve-outs. During the negotiations, the focus should be on clarity and simplification: A structured exchange of data (with clean teams if necessary) and a well-prepared negotiating team on the seller’s side ensure that key points - price, guarantees, risks - are addressed openly. Ultimately, it is important to draw up a purchase agreement that gives both buyer and seller sufficient certainty that the divested business can be successfully transferred and continued. Creative solutions can come into play here, such as a gradual takeover (e.g. the seller initially retains a minority share to accompany the transition), earn-out clauses, or agreements on future cooperation between the old company and the carve-out (e.g. supply contracts, joint development projects) to ensure a smooth transition.
Conclusion
Carve-outs in the A&D sector are among the most demanding transactions - they combine the usual challenges of a corporate spin-off with a dense network of regulations and security requirements. Nevertheless, a properly prepared and executed spin-off can offer considerable strategic advantages: The company streamlines itself and focusses on its core business, while the spun-off division can grow in a more targeted manner under new management or ownership. Investors are given the opportunity to acquire an established business area with great potential - provided they understand the special features of the A&D sector.
Carve-outs are always successful when legal diligence and operational excellence go hand in hand: From export control compliance to investment approval and IT migration, every piece of the puzzle must be considered. Experience from the Hensoldt carve-out or other European transactions shows that these are manageable tasks if companies and investors work closely together and also get the state stakeholder on board. With clear planning, open communication and the support of experienced advisors, the typical pitfalls can be avoided. In this way, the carve-out does not become an end in itself, but a transaction model that creates value in the A&D sector and at the same time fulfils the high security and compliance requirements.
Future carve-outs in the aerospace and defence industry are likely to become even more relevant against the backdrop of rising defence spending and advancing technological developments. Those who take the success factors mentioned seriously will create the basis for such transactions to be a success for all parties involved - companies, investors and the state.
