Legal Entity Operating Structure

Abstract

Divestitures are usually an effective option to generate shareholder value, but it is critical to execute these transactions quickly and efficiently to ensure the companies involved can resume business as quickly as possible after the divestiture is completed. Otherwise, divestitures may become expensive, time- and resource-consuming, and laden with risks.

To execute a successful divestiture, it is essential to set up a new legal entity for the divested or separated business unit. Due to a myriad of cross-functional interdependencies involved in setting up and operationalizing a new legal entity, this task is particularly challenging and, if not managed carefully, can pose a risk to achieving Day 1 success. The complexity often increases with the company’s size, scope of business operations, and global footprint. Critical activities for effective transaction execution include setting up of a Divestiture Management Office (DMO)/Separation Management Office (SMO) to track divestiture milestones, along with tight coordination among the various interdependent stakeholder teams involved in legal entity readiness. Awareness and proactive preparation for these costly legal entity readiness challenges will help the company prioritize focus areas , analyze trade-offs, and achieve successful transaction execution.

This chapter presents the typical challenges companies face related to legal entity readiness and deal execution and provides insights and tested tactics to manage them successfully.