Divestiture and Carve-Out Consulting: Guiding Successful Business Separations
Mergers and acquisitions Post-merger integration Business transformation
Divestiture and carve-out consulting helps companies separate business units with speed, continuity, and a credible value story. This guide covers carve-out vs divestiture, equity carve-outs, spin-offs and split-offs, and the execution details that determine outcomes.
Spin-off vs carve-out vs divestiture
Difference between divestiture and carve out
Equity carve-out
Spin-off carve-out
Split-off vs spin-off
Spin-off, split-off, split up
Due diligence consulting services
M&A due diligence consulting
Acquisition consultants
Joint venture consulting
Operations consulting
Definitions vary by deal structure, but a widely cited breakdown of spin-offs, split-offs, and carve-outs is summarized by Investopedia.
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- Keywords: divestiture and carve out example, difference between divestiture and carve out, equity carve-out.
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- Keywords: due diligence consulting services, m&a due diligence consulting, m&a consulting firms, acquisition consultants.
- Keywords: joint venture consulting, operations consulting, bcg carve out.
- Questions: What is the difference between divestiture and carveout?
- Questions: What are the 4 types of divestiture?
- Questions: Is a divestiture considered M&A?
- Questions: What is a carveout in private equity?
Divestiture, carve-out, spin-off, split-off definitions
Divestiture is an umbrella term for separating a business, subsidiary, or assets from a parent company.
A spin-off, split-off, and carve-out are common divestiture structures with distinct mechanics. Investopedia overview
| Structure | What happens | Typical objective |
|---|---|---|
| Sell-off | Parent sells a business unit or assets to a buyer for cash or other consideration | Focus, capital raise, portfolio optimization |
| Spin-off | Parent distributes shares of the separated entity to existing shareholders | Independent focus and valuation clarity |
| Split-off | Shareholders exchange parent shares for shares in the separated entity | Separation plus potential parent share count reduction |
| Equity carve-out | Parent sells a portion of subsidiary equity to outside investors, often via IPO | Raise capital while retaining partial ownership |
Separation structures and when to use each
The structure choice affects taxes, governance, timing, and the separation perimeter. Investopedia notes that carve-outs involve selling shares of a subsidiary to the public, while spin-offs distribute shares to existing shareholders. Investopedia comparison
Carve-out and equity carve-out
- Often used when the seller wants cash proceeds and a staged separation path.
- Requires carve-out financials, stand-alone readiness, and investor-grade reporting for the carved entity.
Spin-off and split-off
- Often used when the goal is strategic focus and clearer valuation of the separated business.
- Still requires separation planning, TSA design, and stand-alone operating model decisions.
Carve-out consulting workstreams
Divestiture and carve-out consulting typically combines strategy, operations consulting, finance, and technology execution into a single separation program.
The work is usually managed through a separation management office with clear milestones and decision rights.
Deal perimeter
Entities, assets, contracts, people, IP, and data that move, plus required consents and timing.
Target operating model
Stand-alone functions, org design, governance, policies, and third-party providers.
Finance and carve-out reporting
Carve-out financials, allocations, one-time separation costs, and forecasting.
IT separation
Applications, identity, infrastructure, data migration, cybersecurity, and cutover.
Commercial continuity
Customer and channel communications, pricing and contracts, order-to-cash readiness.
People and change
HR policies, benefits, works councils where applicable, retention plans, and communications.
Transition services agreements and stranded costs
TSAs help maintain continuity when the carved-out business still relies on the parent for key services after close. BDO notes that developing a stand-alone operating model can help define TSAs, identify one-time separation costs, and mitigate stranded costs. BDO operational carve-out considerations
| Topic | What it means | Why it affects value |
|---|---|---|
| TSA scope | Which services the seller provides post-close, for how long, with what service levels | Too much scope raises cost, risk, and distraction for both RemainCo and CarveCo |
| TSA exit plan | Milestones to replace seller services with stand-alone capability or third parties | Faster TSA exit often improves agility and reduces stranded cost exposure |
| Stranded costs | Costs that stay with the parent after separation because they were shared or allocated | Unmanaged stranded costs can depress RemainCo margins post-close |
| One-time separation costs | Technology, legal, finance, HR, and operations costs required to separate | Drives deal model and should be transparently planned and governed |
Due diligence support for separations
Sell-side separation readiness and buyer due diligence often run in parallel, especially for carve-outs. Harvard Law School Forum on Corporate Governance notes that divestitures involving TSAs require planning for essential services costs and that stranded costs can arise when functions do not transfer to the divested entity. Harvard Law Forum article
Sell-side focus
- Carve-out financials and separation cost transparency
- Perimeter clarity, contract novations, and operational dependencies
- TSA menu, pricing approach, and governance model
Buy-side focus
- Stand-alone cost baseline and synergy assumptions
- Day 1 readiness and TSA exit feasibility
- Systems separation risks, data migration, and cybersecurity
Day 1 readiness and cutover planning
Day 1 readiness is the minimum viable separation needed to operate legally and commercially at close.
BDO highlights that TSAs can encumber sellers with responsibilities and costs, and it recommends developing a TSA strategy early to minimize TSAs and mitigate stranded costs. BDO operational carve-out considerations
- Legal entities and governance ready, banking and treasury access, required licenses, and insurance in place.
- Core order-to-cash and procure-to-pay processes functioning, including invoicing, collections, and vendor payments.
- Identity and access management, cyber controls, and data handling rules implemented.
- Customer communications, contract transition plan, and support model established.
- Cutover rehearsal completed with clear fallback and incident response plans.
Related NMS resources?
- Mergers and acquisitions
- M&A services: strategy and due diligence
- Mergers and acquisitions full lifecycle
- Merger and acquisition consultants guide
- Post-merger integration
- Post-merger integration PMI strategy and execution
- What is post-merger integration?
- Private equity
- Private equity consulting guide
- Business transformation
- Performance improvement
- Strategy consulting
External references
- Definitions of spin-offs, split-offs, and carve-outs: Investopedia
- Operational carve-out considerations, TSAs, and stranded costs: BDO USA
- Board level considerations including TSAs and stranded costs: Harvard Law School Forum on Corporate Governance
- Value creation lens for carve-outs: McKinsey
FAQ?
What is the difference between divestiture and carveout?
Divestiture is a broad term for separating a business or assets from a parent, while a carve-out is a specific divestiture structure where a separate entity is created and a portion of its equity is sold to outside investors, often through an IPO.
This distinction is commonly described in explanations of spin-offs, split-offs, and carve-outs.
Investopedia
What are the 4 types of divestiture?
A practical grouping is sell-off, spin-off, split-off, and equity carve-out.
Spin-offs, split-offs, and carve-outs are often discussed together as distinct divestment methods.
Investopedia
Is a divestiture considered M&A?
Many divestitures are executed using M&A processes, including preparing the asset, running diligence, negotiating TSAs, and closing the transaction.
Board guidance often treats TSAs and stranded costs as central considerations in divestitures.
Harvard Law Forum
What is a carveout in private equity?
In private equity, a carve-out often refers to acquiring a business unit that must be separated from a larger corporate parent and made stand-alone.
Operational carve-outs commonly require early TSA strategy, stand-alone operating model design, and mitigation of stranded costs.
BDO
What is the difference between a spin-off and a split-off?
In a spin-off, the parent distributes shares of the separated entity to existing shareholders, while in a split-off, shareholders choose to exchange parent shares for shares of the separated entity.
Investopedia
