A one-size-fits-all integration process can destroy the agility of smaller acquisitions. Rockwell Automation developed separate playbooks for small, medium, and large targets. This tiered approach allows the acquirer to apply necessary safeguards while preserving the target's operational speed, preventing process friction.

Faced with a large deal from Robinhood requiring custom work, Assembled's engineering team was hesitant. They created a detailed document analyzing if the custom requests were generalizable blueprints for future enterprise clients or a one-off distraction. This framework helped them decide which deals would accelerate growth.

A major hidden cost in carve-outs is vendor contract renegotiation, as change-of-control clauses can trigger price hikes. State Street mitigates this by stating in its LOI that the valuation assumes all third-party contracts remain at or near historical costs. This forces the issue early and protects the buyer's valuation model.

A one-size-fits-all integration can destroy the culture that made an acquisition valuable. When State Street acquired software firm CRD, it intentionally broke from its standard process, allowing CRD to keep its brand identity, facilities, and even email domain to preserve its creative culture and retain key talent.

To avoid post-close surprises and knowledge loss, marry diligence and integration leads before an LOI is even signed. This ensures real-world operational experience informs diligence from the start. The goal is to have a drafted integration thesis by LOI and a near-complete plan by signing, not after closing.

When sourcing a carve-out proactively, the seller may not be fully committed. State Street recommends the seller commission a sell-side Quality of Earnings (QofE) report. Their willingness to invest in this serves as a strong signal of their seriousness and provides a more accurate financial baseline, reducing the risk of surprises during diligence.

State Street's Keith Crawford identifies three primary reasons to walk away from a carve-out. First is an uncertain perimeter—not knowing exactly what assets you're buying. Second is ambiguity around which employees are in scope. Third is discovering you cannot perform the core service on day one due to a missed dependency.

A process where the deal team hands off a signed transaction to a separate integration team is flawed. State Street integrates business and integration experts into the deal team from the start. This ensures diligence is informed by integration realities, timelines are realistic, and synergy assumptions in the deal model are achievable.

The historical advantage of simply carving out a business that a corporation undervalued is gone. Increased competition and complexity mean that without a critical eye and deep expertise, carve-outs are now just as likely to fail as they are to succeed, with average returns declining over the last decade.