By Simon Wells, for Forbes Business Council.
When it comes to mergers and acquisitions carve-outs, finance isn’t normally the headline risk in the investment case. However, during execution, it is often the function most capable of undermining value creation in the first 12 months post completion.
When a business transitions from corporate ownership to private-equity control, the finance separation is not just administrative; it’s often a structural redesign of the company’s financial architecture.
For buyers looking for a seamless transaction, understanding the practical friction points in the finance separation can mean the difference between operational stability and prolonged disruption. Here are some key considerations private equity firms can address:
Change Of Control Means Change Of Review
A shift from corporate ownership to private equity control will typically trigger refreshed Know Your Customer (KYC) and anti-money laundering (AML) reviews from banking counterparties.
Private equity structures, particularly where offshore vehicles, multi-layered holding structures or limited partnership arrangements are involved, often require enhanced due diligence. Banks will request updated ultimate beneficial ownership (UBO) information, structure charts, constitutional documents and, in some cases, evidence regarding the source of funds.
Importantly, private equity ownership itself is not inherently problematic. Delays arise where documentation is incomplete, ownership chains are opaque or jurisdictional risk thresholds are triggered. Without early engagement and a well-prepared KYC pack, account openings and facility activations can be delayed at precisely the moment liquidity certainty is most critical.
Extracting From The Group Structure
In many carve-outs, treasury functions are embedded within the seller’s group function until separation. Cash pooling, foreign exchange (FX) hedging and central liquidity forecasting are typically managed outside of the perimeter.
This creates two core risks at separation. First, operational dependency. The standalone business may lack both the capability and direct control over liquidity positioning and working capital management. Second is the structural disentanglement of group cash pools or hedging programs that may require lender consent, facility amendments or covenant re-testing.
A clean separation may require establishing standalone bank accounts, treasury policies, cash forecasting capability and, where required, replacement credit facilities. This is often something that needs to be in place by closing.
Banking Access, Mandates And Portal Migration
Opening or accessing bank accounts is rarely the primary challenge. The complexity lies in mandate restructuring, portal configuration and historical data extraction.
New boards must pass signing authorities, directors must complete identity verification and user hierarchies within online banking portals must be rebuilt. Payment templates, dual authorisation controls and security credentials require testing prior to the transition services agreement (TSA) expiration.
A detailed banking migration plan should cover account opening and closure sequencing, security and guarantee releases, portal reconfiguration, data extraction protocols and user acceptance testing.
Jurisdictional And Regulatory Constraints
Banking relationships that function within a multinational corporate structure may not automatically survive separation. Some banks may lack the licensing authority to service a newly established holding company in a different jurisdiction. Others may reassess exposure based on standalone credit metrics or revised risk appetite criteria.
This is rarely about private equity ownership in isolation. Instead, it reflects regulatory perimeter constraints, jurisdictional risk assessments and internal capital allocation policies. Early confirmation of ongoing banking eligibility and pre-negotiation of alternatives where necessary is therefore essential.
‘Wrong Pockets’ And Residual Banking Liabilities
Carve-outs can expose “wrong pockets” risk where assets, liabilities or contractual obligations remain legally held in the incorrect entity following separation. In a banking context, this extends beyond debt structures to include guarantees, security interests (including fixed and floating charges), cross-default provisions and ancillary facility documentation established at the group level.
Crucially, it can also arise in more operational ways, such as customer receipts continuing to be paid into bank accounts that remain with the seller post-completion, creating immediate cash flow disruption and reconciliation challenges.
Therefore, purchase agreements must clearly allocate responsibility for transferring or redirecting these arrangements, including customer payment flows and releasing or novating banking structures. Where immediate novation is not feasible, transitional protections and indemnities must be robustly drafted. Without this discipline, sellers may retain residual exposure, while buyers risk loss of cash control and unintended contingent liabilities.
Capability Gaps: When The Centre Doesn’t Transfer
Corporate owners often centralise high-value finance functions such as financial planning and analysis (FP&A), tax structuring, treasury modelling, internal audit and performance analytics within the group centre. These capabilities often do not automatically transfer with the perimeter.
Under private equity ownership, reporting expectations typically intensify. Covenant compliance reporting, 13-week cash forecasting, board-quality monthly management accounts and investor reporting discipline become standard. A transactional finance team alone may be insufficient.
Where FP&A and analytical roles remain with the seller, buyers must rapidly recruit or deploy interim expertise. Without this, the business risks operating with incomplete performance visibility during the most strategically sensitive period of ownership.
Redefining Inter-company Economics
Where ongoing cross-border arrangements remain between group entities following separation, new transfer pricing arrangements must be established on an arm’s-length basis.
Legacy group methodologies cannot simply be inherited, as the underlying operating model and risk profile will have changed. New intercompany agreements, pricing methodologies and supporting documentation are required to satisfy tax authority expectations and mitigate the risk of double taxation or permanent establishment exposure.
Early tax structuring input is therefore integral to finance separation planning.
Historical Data And Audit Continuity
Completion does not reset statutory record-keeping obligations for the acquired entity. In the U.K. and many comparable jurisdictions, companies are required to retain accounting records for at least six years (often seven in practice). Where historical financial data resides within the seller’s enterprise resource planning (ERP) environment, structured extraction in a format that can be interrogated in future is mandatory.
General ledger detail, journal entries, fixed asset registers and supporting documentation should be migrated or securely archived. Failure to preserve this evidence can lead to audit delays, qualification risk and complications long after separation.
The Bottom Line
The overall takeaway is simple: The finance separation should be viewed as a rebuild, not a reset. Get it right and it enables control and value creation. Get it wrong and it embeds risk at the point the business needs stability the most.