What is a carve-out? Well, it’s an intriguing and innovative option for companies investigating strategies for non-core, potentially underperforming or unprofitable subsidiaries. Only a handful of companies specialize in this space. One of them is Skyview Capital, a Century City, Calif.-based investment firm.
Behind the company’s carve-out expertise is Founder and Chairman, Alex Soltani, and a team of more than 20 professionals in operations, business development and deal execution. Soltani formed Skyview Capital following his tenure at Los Angeles-based private Platinum Equity, a multi-billion dollar private-equity firm specializing in corporate divestitures, public-to-private transactions and private sales. Soltani previously headed up All Digital Communications, a nationwide B2B wireless telecommunications provider where he forged alliances with several of the largest national wireless carriers.
With its unique carve-out strategy, Skyview Capital closes an average of 3-4 transactions per year. The firm has completed nearly 30 transactions in technology, telecommunications, business services and niche manufacturing sectors since its inception in 2005.
“When large companies consider options for non-core, potentially underperforming subsidiaries, the best solution could very well be the sale of that business, otherwise known as a corporate carve-out,” Soltani says. “Non-core, potentially unprofitable subsidiaries can distract from the core business; it often is an epiphany for CEOs when they discover firms such as Skyview that want to acquire these operations.
Skyview sources opportunities through direct ongoing communication with senior executives at Fortune-1000 companies and smaller enterprises. At the same time, Skyview receives consistent inbound leads from investment banks, accountants and lawyers. Trade shows and conventions are another resource for discovering ‘carve-out’ opportunities.
Examples of recent Skyview Capital carve-out deals include Continuum Global Solutions, a global customer contact center business acquired from Conduent, Incorporated; SchoolKidz, a nationwide, award-winning school and emergency kit company acquired from Staples, Inc.; and Digital Fuel, an IT business management software business acquired from VMware, Inc.
“Acquiring carved-out business units can be more challenging and nuanced than buying existing standalone businesses,” Soltani says. “Buyers that are not carve-out specialists oftentimes don’t possess the necessary infrastructure to operate the new stand-alone business and will need to rely on the corporate parent for legal, human resources, finance/accounting and other services. It is rare that private equity buyers have the knowledge and experience base to understand the potential pitfalls associated with the many challenges and nuances inherent in operating a newly carved-out business.”
Since Skyview Capital’s focus is carve-outs, the company is able to execute these transactions in ways that result in a win for all parties involved – the parent company, the subsidiary’s employees and investors. “Our parent company is better positioned to focus on its core business and potentially avoids the negative public relations impact of shutting down a business,” Soltani says. “The subsidiary’s employees will receive the resources and attention necessary to optimize the business and the HR department is spared the time and energy associated with employee terminations. Shareholders are supportive of the divestiture because it frees the management team to focus on delivering value to the core business and potentially removes a lower margin, lower growth, potentially money-losing business from the portfolio.”
The stages involved in a Skyview Capital carve-out include identifying the deal opportunity, conducting due diligence on the business, structuring the transaction, finalizing deal documentation as well as the Transitional Services Agreement (TSA), and closing the transaction.
Skyview then “stands up” the business while building out the corporate back-office operations. As a private-equity buyer that has focused on acquiring non-core businesses for 15 years, Skyview is able to structure carve-outs customized to meet the specific business objectives of parent companies. “Companies engaging with Skyview Capital on carve-out transactions quickly come to recognize the substantial advantages inherent in working with the Century City firm,” Soltani says.
“We bring leadership and management in all areas of operations to support the full back office functionality required to operate a stand-alone business. Our operational teams help stabilize new carve-outs, work in tandem with company executives to ensure a smooth transition, and then develop as well as execute a strategic plan.”