• In an equity carve-out, a company sells a stake in the unit, whereas in a spin-off, the unit becomes a standalone company.
  • Within the private equity space, a carve-out is most valuable when it opens a channel for the firm to profit from a business unit that otherwise does not align with the primary investment thesis.
  • Unsold investments and a slow economy have triggered significant momentum in the carve-out transaction landscape.
  • Executives with expertise in these complex transactions can leverage this experience to stand out in an already competitive talent market.

2023 saw a decline in PE activity — transaction value overall declined 34.7% year-over-year to $474.14 billion, with deal count falling from 17,549 to 12,016. Against this backdrop, private equity firms were sitting on $2.59 trillion in unspent cash for buyouts. (Source: S&P Global Market Intelligence Data.)

Dry powder and a backlog of unsold investments have placed pressure on executives to consider a wide array of transactions to drive growth. To this end, we are seeing an upsurge in carve-out deals for value creation purposes.

Read more below to understand the critical aspects of carve-outs when considering them as a repositioning opportunity.

What is a carve-out?

A carve-out refers to the sale of a business unit. A parent company will sell a minority interest of a business unit to outside investors, often through a minority initial public offering or IPO. A public offering also creates a new class of investors. There are two primary contexts for the sale: an equity carve-out and a spin-off.

In an equity carve-out, the parent company sells an equity stake in the unit. This is either because a single buyer could not be found, or because the firm wants to maintain some control of the business. The ultimate goal of such a move might be divesting completely, but there are a plethora of reasons why a firm may need to gradually restructure its assets. One common reason for the restructuring is that the smaller unit no longer represents the parent company’s core operations, but the parent still wants to benefit from its equity and potential new investors.

In a spin-of...