One company’s carved-out business unit may become another company’s treasure—that is, if the buyer can successfully integrate the carved-out asset into its own operations. However, that’s not always a given, because these deals can pose unique challenges for the leaders involved.
For instance, buy-side carve-out CFOs need to build flexibility into the company’s financial models and contribute to structuring and negotiating the financial components of transition service agreements (TSAs). Integration leaders of buy-side carve-outs need to ensure communication between buyer and seller teams, scope out workstreams, and prepare for day one and beyond of the new entity. The chief human resources officer (CHRO) faces some of the most formidable challenges in buy-side carve-outs: It’s this leader’s job to change hearts and minds and help employees of the carved-out entity feel excited, motivated, and ready to do their best as they are welcomed into the buying organization.
McKinsey’s proprietary research shows that buy-side carve-outs account for 28 percent of all M&A transactions (see sidebar, “What exactly do we mean by ‘buy-side carve-out?’”).1 It is not hard to understand why there is high interest in these targets: Sellers often divest noncore, deprioritized assets to buyers that are generally better positioned, with better strategic fit, to reap value from these assets.
But whether buy-side carve-outs encompass entire subsidiaries or specific divisions, locations, or teams, they can be jarring for all employees. It is critical for the CHRO on the buyer’s side to help manage employees’ reactions throughout the deal phases because even the best integration planning can be no match for a demotivated workforce. With these dynamics in mind, CHROs need to work proactively to address fears and create ownership and enthusiasm among the carve-out’s employees. They can do so by establishing reporting structures that connect the new unit to the organization on day one and by communicating early and often with their new employees about what the future holds.
Buy-side carve-outs can be disruptive and challenging, but they also present an inflection point, offering new beginnings, opportunities, and professional purpose. With the right CHRO leadership, a carved-out team doesn’t just join a new company; it joins a new vision.
Understanding how buy-side carve-outs can make employees feel
Change can be difficult in the best of times. For employees of a company that has been carved out and acquired, the disruption can feel acute and beyond their control. Based on our conversations with employees in dozens of buy-side carve-outs, two emotions are the most powerful and pervasive:
- Feeling abandoned. Unlike a regular acquisition in which a whole company moves under new ownership, the seller continues to exist in buy-side carve-outs. This can leave a select number of employees feeling as if they have been “sent away.” Employees often describe feeling surprised when they learn they are no longer welcome in the seller organization.
- Feeling uncertain. In many cases, sellers carve out parts of their business that haven’t been the center of attention or have lacked investment. Some employees may be cautiously optimistic that a new buyer can reinvigorate the carved-out entity. Others may not want to go, and still others may be stressed by the uncertainty of their exact fate. Retaining or regaining employees’ trust and building their excitement takes work.
Both emotions may increase the risk of attrition, particularly among the highest-performing employees, who often have the most options. They can also lead to the development of a low-performing culture. And while it’s critical to provide assurances to employees of the carved-out entity, these assurances can be hard to deliver because buyers often have little ability to communicate with their new employees before a deal closes. In fact, the buyer may not even have a final view of who exactly will move over with the asset until near the close of the transaction. This makes it difficult to plan a proper onboarding process and to assign employees to the buyer’s organization structure, though both steps are vital to a positive transition experience.
We learned how anxious an R&D team became as the unit was carved out as part of a patent purchase. These employees were concerned that they would lose the freedom to explore diverse research areas, and that projects they valued would falter. Many of these employees were offered jobs at other organizations that assured them they could complete their research. To counteract the risk of attrition, the buyer focused on finding ways to communicate what would change and what would stay the same and on building confidence that important research projects were safe.
The CHRO’s tool kit: Precise talent integration and thoughtful communication
To successfully integrate employees from the carved-out asset and generate the intended value from the deal, people leaders need a strategy to address employee concerns. This requires a seamless transition process and clear, optimistic communications from the CHRO and other leaders to the new team.
Executing talent integration with precision
CHROs play a central role in ensuring that the transition of talent in a buy-side carve-out is smooth, compliant, and minimally disruptive. A primary goal is to retain the highest-performing employees, who are also the ones who often have the greatest opportunity to leave if they find the integration process overly disruptive.
The buyer can benefit from establishing early alignment with the seller’s HR team on which employees will transfer, which will remain behind, and the expected communication timeline. This clarity enables simple tasks—such as issuing new email addresses and badges—and more complex activities—like migrating payroll, benefits, and employee data—to move forward efficiently.
Buy-side people leaders can designate a dedicated HR integration lead to coordinate the transition and serve as a single point of contact across functions. They can also map onboarding requirements by geography—covering items such as background checks, employment agreements, regulatory filings, and local labor law compliance, particularly in cross-border contexts.
Even when the seller initially sets up the carve-out as a stand-alone entity, the buyer can benefit from defining a clear, temporary reporting structure for day one. This includes clarifying where each employee will sit, who they will report to, and who will oversee their onboarding. These decisions also shape critical operational elements, including payroll processing, approval rights, and potential location changes.
Finally, CHROs can reinforce stability and engagement by sharing a clear people transition road map with affected employees. Transparent communication from the outset can ease uncertainty and help new team members feel anchored in the acquiring organization.
Communicating early, clearly, and intentionally
Strict antitrust and legal restrictions aimed at preventing “gun jumping” often limit or prohibit buyers from directly engaging with carve-out employees prior to deal close. However, sellers can allow limited, supervised communication between buyers and affected employees. This enables buyers to convey key information—such as planned retention initiatives (both financial and nonfinancial)—as well as broader messaging, including the vision for the new organization.
In one case, an acquirer published a microsite with a welcome message, an overview of the company’s values, why it was excited to welcome its new employees, and what to expect which offered details about tech enablement and orientation. As part of its onboarding process, the company also paired new employees with peers from similar backgrounds (including those with similar functional expertise or from the same alma mater). These buddies and mentors were available to answer questions and help the employees from the carved-out entity navigate the new organization. On day one, this same acquirer hosted both in-person and virtual welcome celebrations.
In situations where the carved-out entity has been underfunded and under-resourced for some period of time, CHROs and other leaders in the acquiring company may want to focus their communications on actively recognizing new employees and prioritizing their development and well-being. One company, for instance, sent new office entry badges to employees’ homes and created an app that let them book rooms in the new office. These small gestures helped create a welcoming environment and a sense of belonging to the new organization. Both this company and the one mentioned earlier were rewarded for their efforts by low attrition, positive onboarding experiences, and smooth integrations of the new teams.
While the integration process for buy-side carve-outs isn’t easy, its challenges are addressable. Great people leadership starts with understanding affected employees’ emotions—and the effect those emotions can have on performance. CHROs can then work on a dual track of excellent people transition processes and early, clear, and intentional communication. When done well, this approach can foster cultural alignment, build trust, and set the stage for long-term value creation.
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