A carve-out is the partial divestiture of a business unit in which a parent company sells a minority interest of a subsidiary to outside investors. The carve-out, whether conducted through a trade sale, buyout, or IPO, has become very popular among M&A teams. In fact, carve-out deals boost balance sheets and deliver shareholder value. A carve-out allows a company to capitalize on a business segment that may not be part of its core operations.
But carve-outs are also the most complex type of divestiture and often resource-intensive and costly. They require lot of preparation, communication, and coordination across multiple teams and stakeholders. If the execution of the carve-out fails to deliver on the plan, business continuity and valuation are at risk quickly. Therefore, it is crucial to plan a carve-out project rigorously. Here is how.