Picking Up the Pieces: The Corporate Carve-Out Opportunity

As deal activity ramped up in the past two years, both buyers and sellers found increasing M&A opportunities in corporate carve-outs.

Dealogic reported that 9,155 carve-out transactions worth $2.3 trillion were announced globally last year, a 67% increase in value over 2020. An expanding economy, rising company valuations and eager private equity buyers looking to make up for lost time contributed to the surge.

A corporate carveout is a process by which a company spins off a subsidiary or division into a separate, independent company. This can be done for a variety of reasons, such as to raise capital, to focus on a specific product or service, or to allow the newly independent company to pursue strategic opportunities that may be outside the scope of the parent company's business.

In a corporate carveout, the parent company typically retains a minority stake in the newly independent company, which can be sold to other investors at a later date. The newly independent company may also be listed on a stock exchange, allowing the public to buy and sell shares in the company.

Corporate carveouts can be complex transactions, involving the transfer of assets, employees, and intellectual property from the parent company to the newly independent company. They may also involve the renegotiation of contracts and the restructuring of debt. Careful planning and execution are critical to ensure that the carveout is successful and benefits both the parent company and the newly independent company.

A corporate carveout is typically done as a means of restructuring the parent company or as part of a divestiture strategy. Corporate carveouts can take a variety of forms, including spin-offs, split-offs, and divestitures.

In a spin-off, a business unit is separated from the parent company and becomes an independent entity, with its own management team, board of directors, and shareholders. A split-off involves the creation of a new company that is owned by the shareholders of the parent company, with the business unit being transferred to the new company. A divestiture involves the sale of a business unit to an external buyer.

Corporate carveouts can be motivated by a number of factors, including the desire to focus on core business operations, to raise capital, to unlock value for shareholders, or to improve operational efficiency. They can also be used to separate businesses that have different growth prospects or that operate in different industries.