As soon as the closing of a corporate carve-out is complete and from Day 1 of operational continuity, the new entity’s management must equip the company with its own business plan. This stage is less visible than the negotiations and has less immediate effects than the technical separation, but it is here that the spun-off asset defines its own identity and the initiatives through which to implement its new strategy.
That division previously planned within a scope determined elsewhere and used a three- or five-year budget, a tool built around top-down guidelines and bottom-up initiatives for hitting the targets. The parent company set the objectives in terms of revenue and margin and measured the performance with the ability to achieve them. Capital decisions, strategic investments and the financial structure were the responsibility of another level of the organisation. Becoming a stand-alone company means, first and foremost, regaining the ability to plan.
From the unit budget to a business plan
A unit budget and a business plan have a different tenure and nature. A budget is an allocation of resources, tied to reporting requirements to the parent company. A business plan is a strategic document that outlines where the company wants to be in five years’ time, which markets to target, which investments to make, and which sources of finance to use to cover those investments and working capital.
Drawing it up requires answering questions which, in the previous context, were not even put to divisional management: what is the sustainable capital structure for this company? How much cash does the business actually generate, net of working capital and the investments needed to remain competitive? Which projects deserve resources, now that financial support from the parent company is no longer available?
It is the most challenging transition, because it requires a shift from a culture focused on optimising the profit and loss account to one whose primary objective is to maximise cash flow.
The new set of indicators: from economic performance to cash flow generation
A credible business plan cannot survive without the tools to manage it. The management of a division is typically briefed on the profit and loss account (turnover, margins, EBITDA) because it is on the ground of those metrics that they were assessed, with at most a few investment proposals – which were in any case decided at head office. The management of treasury, funding and working capital was centralised and, in effect, invisible. In the transition to an autonomous company, the focus of the information system shifts: alongside monthly financial reporting comes weekly cash flow monitoring, which becomes the day-to-day operational tool. It is there that the company’s true health and its ability to self-finance the plan are measured.
The experience of Itasprings (fka Prodotti Baumann), now part of the portfolio of Newport & Co, B-Corp, is instructive in this regard. The five-year business plan was drawn up by the company’s management; it was not imposed from above but merely refined, whilst the reporting framework – comprising weekly cash flow reports and monthly income and balance sheet reports – was provided by the shareholder. The most challenging aspect of the transition was not technical but cultural: a management team historically focused on the profit and loss account had to learn to think in terms of cash flow. This is a natural difficulty and, for this very reason, must be managed methodically.
The dual perspective: short-term rigour, long-term vision
It would be a mistake to view the business plan as a long-term exercise detached from day-to-day operations. The exact opposite is true: a five-year plan is only viable if it is anchored to a very short-term implementation framework. The multi-year vision sets the direction; weekly cash flow monitoring, working capital management, prioritising collections and the rigorous selection of investments to safeguard medium- to long-term margins ensure its feasibility month after month.
It is in this tension between the long-term horizon and day-to-day rigour that a spin-off learns to operate as a business. The plan is not a document to be filed away once approved: it is the tool by which management translates financial results into actual cash flow, week after week.
Why all this matters in a carve-out transaction?
For the community of M&A advisers, investment banks and selling CEOs, the way in which a buyer approaches stand-alone planning is a valuable indicator. Those who buy with a view to reselling in the short term have little interest in drawing up a proprietary business plan: a budget that will last until the exit is sufficient for them. Those operating with permanent capital, as perpetual compounders, on the other hand, need every company to be capable of generating cash flow sustainably for decades — and for this reason they invest so that management can draw up its own plan, setting out objectives, methodologies, reporting tools and financial discipline.
From this perspective, the stand-alone business plan is not a mere formality: it is the most concrete evidence of a buyer’s calibre. It demonstrates that, behind the transaction, there is not a focus on short-term value extraction, but a commitment to building a business that retains value and generates cash well beyond the transaction’s time horizon.
Matteo Bordato
Chief Financial Officer, Newport & Co spa Società Benefit
