Key Takeaways

  • Corporate carve-outs are accelerating as valuation disconnects freeze broad platform sales, prompting corporate parents to shed non-core divisions to free up capital.
  • Standalone cost assumptions often collapse because parent-level vendor contracts mask true operational costs; volume pricing disappears once the target is severed from corporate parent scale.
  • Source code separation in software transactions has shifted. Modern artificial intelligence assets alter intellectual property priorities, which Fortier observes makes code isolation faster than legacy tech carve-outs.
  • Transition service agreements (TSAs) constructed late in negotiations routinely become seller profit centers or operational bottlenecks, exposing buyers to margin decay post-closing.
  • Fortier formalizes the pre-closing discovery process through Fortier's Carve-Out Gap Analysis and TSA Road Map, structuring operational readiness before purchase agreements lock.

Fortier's Carve-Out Gap Analysis and TSA Road Map

Danielle Fortier, partner at Cooley, applies a structured three-part sequence to isolate dependencies before buyers commit capital. “We like to, when we have a new carve-out come in the door, give the client a road map that says, 'Here is what you need to figure out first, and then here is the next step,'” Fortier explains.

Step 1: Identify Business Entanglements and Service Gaps: Drill down immediately during pre-LOI and early diligence on where the target business is entangled with the seller's retained operations, identifying specific functional, vendor, software, and personnel gaps where the business cannot stand alone.

Fortier emphasizes starting with structural deficits: “Usually the first step is drilling down on where are the entanglements in this business and where are there places where you as the buyer are going to have to fill a gap either through TSA, through getting your own contract, etc.”

Step 2: Conduct Side-by-Side Buyer Capability Analysis: Perform a side-by-side comparative analysis matching the identified gaps against the buyer's existing vendor contracts, operational systems, and internal personnel to see what the buyer can absorb immediately on day one or within months post-closing.

Mapping assets against buyer infrastructure defines the actual transition burden: "It is a side-by-side analysis with what the buyer has in terms of contractual relationships, what they have in terms of internal personnel. That is the road map to what we can do as a buyer to fill the gaps that exist by the nature of this being a carve-out."

Step 3: Define Scope and Schedules for TSA Reliance: Isolate the remaining operational holes that the buyer cannot independently satisfy and convert them into granular schedules within the Transition Services Agreement (TSA), defining specific services, performance metrics, pricing, and required durations.

Contractual schedules must be restricted only to irreproducible parent services: “Then we look at what are the TSA services. Here is the hole, here is what buyer can fill, and then here is what they cannot. That is what we need to rely on the TSA for, and that is where we really get into the nitty-gritty of putting together the TSA and the schedules of the TSA.”

When This Works (and When It Doesn't)

This framework functions cleanly when applied at the outset of corporate carve-out transactions, ideally pre-LOI or during early confirmatory diligence. It prevents sponsors from signing asset purchase agreements with uncosted shared services, unidentified software dependencies, or underpriced vendor arrangements.

It stumbles when acquiring targets buried inside enterprise matrix organizations where functional heads serve three business lines at once. In those corporate structures, the seller rarely knows which specific personnel or server instances support the carved-out unit. If the seller lacks divisional cost accounting, a side-by-side capability analysis stalls because the true baseline operational footprint remains unknown until long after closing.

Why It Matters

Carve-outs have become the primary liquidity valve for corporate boards sitting on assets they refuse to sell at compressed whole-company multiples. Financial sponsors see mispriced perimeter assets, while sellers see cash without sacrificing core platforms.

The arbitrage disappears when transition friction eats the underwriting margin. Enterprise parents routinely run software, cloud hosting, and shared administrative centers at massive bulk discounts. When an independent sponsor acquires the asset, those discounts evaporate, leaving the new entity with 20% to 40% vendor cost inflation. By locking TSA schedules and functional gap analyses directly into the LOI stage, sponsors force sellers to subsidize the operational separation period instead of absorbing post-closing margin degradation.