Selling a Business Unit in the Netherlands: Legal Points in a Carve-Out

A Dutch carve-out requires more than defining the purchase price: the parties must decide what exactly moves, what stays behind and how the business will operate after closing

A carve-out is the sale or separation of a business unit from a larger company or group, requiring the parties to identify precisely which assets, contracts, employees, liabilities, data, IP rights and shared services are transferred to the buyer.

For US and UK investors, strategic buyers and their advisers, a Dutch carve-out can look like a familiar asset deal or pre-closing restructuring. In practice, the Dutch implementation often requires more detailed legal and operational work. The business unit may not be held in a clean legal entity. It may rely on group contracts, shared employees, central IT systems, group IP, back-office services, intercompany arrangements, permits, data and finance or HR support.

That makes the main legal question very practical: how do you transfer a Dutch business unit without leaving uncertainty about what has been acquired, which liabilities have been assumed and what support is still needed after closing?

This article is part of the M&A Insights series on Dutch deal practice for buyers, sellers and investors and is also relevant to international deal teams working on cross-border Dutch deal implementation.

What is a carve-out?

A carve-out is a transaction in which a business unit, division, product line, customer portfolio, technology platform or operational activity is separated from an existing company or group and transferred to a buyer.

The key point is that the carved-out business is often not fully standalone before the transaction. It may share systems, employees, contracts, IP, data, premises, management, accounting, procurement, HR or legal support with the seller’s wider group. The transaction therefore involves both a legal transfer and an operational separation.

A well-structured carve-out starts with a simple but demanding question: what does this business need to function on day one after closing?

Share sale or asset transfer?

The first structuring question is whether the carve-out will be implemented through a share sale or an asset transfer.

If the business unit is already held in a separate Dutch BV, or can be transferred into a separate Dutch BV before closing, the buyer may acquire the shares in that entity. That can be efficient, but only if the entity actually contains the right business, contracts, employees, IP, permits and liabilities.

If the business unit is not held in a clean legal entity, the transaction may need to be structured as an asset transfer. That gives the parties more control over what moves and what stays behind, but it requires much more detail. Each asset, contract, employee group, liability, licence, data set and operational dependency must be identified.

For foreign buyers, the trap is to assume that “the business” is self-evident. In a Dutch carve-out, the business must be legally described and operationally deliverable.

Defining transferred assets and assumed liabilities

The core drafting exercise in a carve-out is the perimeter. The transaction documents must specify the transferred assets, excluded assets, assumed liabilities and excluded liabilities.

Transferred assets may include inventory, equipment, customer contracts, supplier agreements, receivables, order book, trade names, domain names, software, licences, data, IP rights, permits, business records and operational documentation. Assumed liabilities may include customer obligations, warranty claims, lease obligations, employment liabilities, supplier liabilities, pending disputes or obligations under transferred contracts.

The documents should also deal with mixed assets and shared contracts. A group-wide customer agreement, software licence, insurance policy, procurement contract or IT services agreement may support both the carved-out business and the seller’s retained business. The parties then need to decide whether that arrangement will be transferred, split, replaced, licensed or supported temporarily under a transitional services agreement.

Without this discipline, closing may occur while the commercial perimeter remains uncertain.

Employees and transfer of undertaking rules

Employee transfer is often one of the most important Dutch law issues in a carve-out. If the transaction qualifies as a transfer of undertaking, employees assigned to the transferred business may move to the buyer automatically by operation of law.

This can be critical in business-unit sales. Some employees may work exclusively for the carved-out business. Others may split their time across several divisions. Central functions such as finance, HR, IT, legal or compliance may support the business but remain with the seller.

The buyer needs to know which employees transfer, which employees are essential to business continuity and which services must be replaced or temporarily provided by the seller. The seller needs to avoid losing employees required for its retained business or retaining employment liabilities that should have moved with the business.

Employment analysis in a carve-out is therefore not a secondary HR workstream. It affects valuation, operational readiness, closing certainty and post-closing integration.

IP, data, software and IT separation

Many carve-outs become difficult because the business relies on IP, data or IT systems that are not neatly owned by the carved-out unit.

The business may use trade names, software, source code, databases, customer data, analytics, CRM systems, licences, documentation, know-how or group-owned technology. The buyer will want assurance that it can continue operating the business after closing. The seller will want to avoid transferring broader group rights than intended.

The solution may be an assignment, licence, transitional access right, data migration plan, new third-party contract or a TSA. Each option has different legal and operational consequences.

Data requires separate attention. Which customer data, employee data, contract data, usage data and operational data moves to the buyer? Is transfer permitted under privacy rules and contracts? Does data need to be separated from group systems? Who remains responsible for historical data?

For US and UK buyers, this is often where the Dutch legal workstream connects directly with operational integration.

Transitional services agreements

A transitional services agreement, or TSA, is often essential in a carve-out. It allows the seller to provide services to the buyer for a limited period after closing so the carved-out business can continue operating while standalone functions are built.

Typical TSA services include IT, finance, accounting, HR, payroll, legal, compliance, procurement, customer support, premises, data access, hosting and back-office support.

A good TSA is specific. It should define the services, service levels, duration, fees, extension rights, termination rights, liability, access protocols, data security, escalation process and migration obligations. It should also explain what happens if the buyer is not ready to separate by the end of the term.

A vague TSA can create exactly the dependency the carve-out was meant to solve. The seller remains involved without clear limits, while the buyer remains operationally dependent without sufficient service commitments.

Due diligence in a carve-out

Due diligence in a carve-out is different from ordinary company due diligence. The buyer is not only asking whether the target business has legal risks. It is asking whether the business can actually operate as a separate business after closing.

The diligence should test the perimeter: revenue, contracts, employees, systems, licences, IP, data, costs, liabilities and shared services. It should also test the financial presentation. Carve-out financials may include allocated group costs rather than true standalone costs. The buyer needs to understand what costs disappear, what costs remain and what additional standalone costs will be required.

For sellers, this means carve-out preparation should begin before the sale process. A poorly prepared carve-out leads to price reductions, broader warranties, more indemnities, heavier closing conditions and longer TSA negotiations.

Warranties, indemnities and closing conditions

Carve-out warranties should reflect the separation risk. Buyers will usually seek warranties on the transferred perimeter, title to assets, contracts, employees, IP, data, permits, financial information, compliance and absence of undisclosed liabilities connected to the carved-out business.

Sellers will seek to limit those warranties to the business actually transferred and to matters properly disclosed. They will also want to avoid becoming responsible for risks that belong to the buyer’s post-closing integration or standalone operating model.

Specific indemnities may be appropriate for known carve-out issues: non-transferable contracts, historical tax exposure, pending claims, employee disputes, IT migration issues, data separation problems or liabilities that may have been incorrectly allocated.

Closing conditions should also be considered carefully. Should key contract consents be obtained before closing? Must employee consultation or works council steps be completed? Does the TSA need to be signed? Must certain IT access, data migration or restructuring steps be completed before the transfer?

A carve-out SPA or APA should not force closing before the business is legally and operationally transferable.

Common carve-out mistakes

A common mistake is defining the business commercially but not legally. Everyone may believe they know what is being sold, but the documents fail to specify assets, contracts, liabilities and exclusions with sufficient precision.

Another mistake is leaving the TSA until late in the process. The TSA is not an ancillary document. In many carve-outs, it is the document that determines whether the buyer can operate the business after closing.

A third mistake is underestimating employment, IP and IT dependencies. These issues often determine whether the carve-out is executable, but they are sometimes treated as specialist annexes rather than core deal points.

Practical conclusion

A Dutch carve-out is not simply a smaller version of a company sale. It is both a transaction and a separation exercise.

The legal documentation must define what transfers, what remains, what liabilities are assumed, which employees move, which IP and data rights are available, which contracts require consent and which services must be provided after closing. The commercial deal only works if the carved-out business can operate on day one.

For US and UK investors and advisers, the key lesson is to treat the carve-out perimeter as a primary deal issue, not as a closing schedule to be completed after the main terms have been agreed.

FAQ

Is a carve-out the same as an asset deal?

Not always. A carve-out can be implemented through an asset transfer, but also through a pre-closing restructuring followed by a share sale of a separate Dutch BV. The key feature is the separation of a business unit from a wider company or group.

When is a transitional services agreement needed?

A TSA is needed when the carved-out business remains dependent on the seller for services such as IT, finance, HR, payroll, compliance, data access, premises or back-office support after closing.

Do employees transfer automatically in a Dutch carve-out?

They may. If the transaction qualifies as a transfer of undertaking, employees assigned to the transferred business can move to the buyer automatically by operation of law.

Who remains liable for historical obligations?

That depends on the transaction structure and drafting. The SPA or APA should clearly distinguish assumed liabilities from excluded liabilities and address known risks through warranties or indemnities.

What should a buyer diligence in a carve-out?

The buyer should diligence the business perimeter, transferred assets, contracts, employees, IP, data, IT systems, shared services, standalone costs, required consents and post-closing operational dependencies.

About Dirk de Waard

Dirk de Waard is a Dutch corporate and M&A lawyer, partner at Venture Lawyers in Amsterdam, and advises international buyers, sellers, investors and deal counsel on Dutch M&A transactions, carve-outs, asset transfers, share deals, SPA/APA drafting, due diligence, transitional services agreements and Dutch deal implementation.

Buying or selling a Dutch business unit through a carve-out?

A Dutch carve-out requires careful legal and operational separation of assets, contracts, employees, liabilities, IP, data and shared services. The transaction documentation, due diligence, TSA and closing conditions should be aligned before signing.

Dirk de Waard advises international buyers, sellers and deal counsel on Dutch carve-outs and M&A implementation. Contact Dirk de Waard at dirk.dewaard@viottalaw.com to structure the Dutch carve-out workstream before perimeter, TSA or closing issues become deal problems.