As an increasing number of companies seek profitability and efficiency by shedding non-core assets, carve outs are making up a greater portion of PE buyout deals, especially in the middle market.
According to PitchBook’s Q1 2024 US PE Middle Market Report, carveout deals saw a significant spike in 2024 Q1, accounting for 15.5% of buyout deals in the middle market—defined as deals between $25 million and $1 billion—rebounding from a low of 7.6% in 2022. Q1 2024 also surpassed the historical average of 12.1% from 2010 to 2020.
While carve-out transactions present PE investors with significant potential for high returns, they also carry their fair share of risk if not properly managed. Technology issues are often the most complicated to resolve when PE firms acquire businesses that must be carved out from the seller. Unlike the acquisition of entire companies where the scope of the deal includes all the technology and data required for operations, a carved-out business likely will not have its own systems, including a clean separation of its operating data, since it ran as a part of a larger enterprise. Instead, it will have to source and implement to a new technology stack in the timeline dictated by the transitional services agreement (TSA).
This can impact a PE firm’s ability to achieve the operating efficiency and revenue required to support its valuation of the carved-out business and its path to a profitable exit. It can increase one-time costs as companies pay for potentially costly and time-consuming technology projects to maintain business continuity once TSAs expire.
However, the technology component of carve outs can also present a significant opportunity for value generation—a chance to make a clean break to new, up-to-date technology, that’s the right scope for a growing business, and that increases its digital capabilities as a part of the separation process.
That’s where having a scalable, quick-to-deploy, cloud-based financial and operating solution comes into play. Here we highlight two PE-backed businesses that successfully carved out from their parent companies using NetSuite for those capabilities.
Dollar Shave Club takes over retail processes after sale
Founded in 2011, Dollar Shave Club was an early pioneer of the direct-to-consumer (D2C) subscription model and focused on delivering quality razors at an affordable price. In 2016, the brand was acquired by Unilever and expanded to sell a broad range of men’s grooming products through retailers such as Walmart, Target, Walgreens, and Amazon.
In October 2023, Unilever sold Dollar Shave Club to Nexus Capital Management, a Los Angeles-based private equity firm. While Dollar Shave Club had separate standalone systems for its D2C business, the retail side was run entirely through Unilever’s ERP system by Unilever employees. Dollar Shave Club had a year to transition off Unilever’s system, per the TSA.
“The hardest part was the blocking and tackling on the retail side of the business that we never had, or needed to have, the internal capabilities for. We're having to stand them up from scratch,” says Dollar Shave Club CFO Dale Brockmeyer. “And it's not just an ERP transition. It's an ERP transition as well as bringing on processes that we never had to do before in any system.”
Dollar Shave Club selected NetSuite as its new ERP system to ease the transition, shorten time to value, and make it simpler to bring future brand acquisitions into the fold. It went live on NetSuite in September 2024, two months before the TSA expired.
“Our goal in selecting NetSuite is to have a solution that is user friendly, reduces complexity, and gives us the ability to scale up,” says Brockmeyer. “We also wanted to be on a platform where we can have other acquisitions. Our CEO’s experience with NetSuite is that it is a much easier platform to plug and play and bring everyone on board.”
Verita transitions to new system seven months after acquisition
Verita, previously known as Kurtzman Carson Consultants (KCC), offers legal, fiduciary, and administrative services worldwide. In May 2023, Computershare sold the company to GCP Capital Partners, a private equity firm based in New York.
At the time of the acquisition, Verita was operating on its parent company’s systems and was given a year to make the transition. The company explored various system options and engaged with a third-party consultant to evaluate new potential systems and eventually chose NetSuite. For Verita CFO Geoff Nordmeyer, the key to selecting the right ERP as a carve-out company was to find a system that was both suitably scaled and cost-effective.
“Private equity will keep a close eye on expenses, and an initial focus area is whether you’re acquiring more tech than necessary,” says Nordmeyer. “We aimed to find a solution that could provide us with what we needed right out of the box, requiring minimal customization. And NetSuite fit the bill.”
Although Verita had until May 2024 to transition away from Computershare’s systems, they successfully went live with NetSuite by January 2024. The swift implementation by Alliance Partner Bridgepoint Consulting was crucial, as Verita needed to deliver the financial performance information expected by GCP Capital Partners.
“We must provide the information our owners need in a way that aligns with their preferences, making flexibility essential. NetSuite fulfills that need,” Nordmeyer remarked.
Verita adopted several NetSuite solutions, including NetSuite Planning and Budgeting, enabling the team to effortlessly generate reports on metrics such as revenue and cost of sales by case with just a click.
“As a private equity-backed company, we need to be able to quickly answer questions and provide confidence to the investors that our data is accurate. In our former environment, we would have to do all that manually, and we’d end up with inconsistencies from different sources. Having everything consistent in NetSuite and being able to rely on it is helpful in building confidence with our investors,” Nordmeyer elaborated.
With proactive alignment to meet TSA deadlines, top-tier implementation teams, and faster time-to-value through SuiteSuccess, NetSuite is the right choice for businesses looking to become independent and grow efficiently post-carve-out.
Learn more aboutNetSuite’s Private Equity Practice, which provides technology and services tailored to the needs of your portfolio companies.