Mergers & Acquisitions 2009—Preparing for “Carve-Out” Transactions: Financial Statements

This LawFlash is one of a series of LawFlashes, each highlighting certain complex technical, financial, and legal issues that need to be addressed in splitting off parts of a larger business. We anticipate that the current economic climate will increasingly lead companies to engage in carve-out transactions (i.e., the sale of subsidiaries or divisions of a larger business enterprise), which will be a dominant part of the M&A market over the next few years. Financial and strategic investors and intermediaries will need to be well versed in these projects and the unique and challenging issues they present.

Intellectual property rights often present thorny issues in M&A transactions. Carve-out transactions can present all of the usual concerns, plus additional issues unique to this type of transaction. The ownership of intellectual property, and the right of certain subsidiaries and business units to use such intellectual property, can be difficult to untangle when the use of intellectual property by subsidiaries and business units does not correspond to the corporate structure contemplated for the transaction. Identifying these issues early in the transaction process is important to ensure that the deal is structured properly and that the value of the intellectual property rights conveyed are built into the overall deal value.

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