Definition - What does Carve-Out mean?
A carve-out refers to a business unit or units that are spun off, or "carved out," out of a larger company or companies. Usually, these business units have existing management and customers in place, but there is a catalyst that encourages the larger company to divest. This catalyst may be that the business unit provides a service or product that is not core to the overall strategy, the overall company may have too much debt and is looking to monetize a valuable piece of the business for debt reduction, or simply the unit has considerable value that is not being reflected in the overall valuation of the company.
Divestopedia explains Carve-Out
Carve-outs are excellent candidates for financial buyers such as private equity groups. This is because carve-outs are usually good businesses with knowledgeable management that simply don't fit in the larger selling company. Even if they are troubled divisions, they can be turned around by the existing management with a different capital structure that the buyer can provide. Oftentimes, the existing management will see an opportunity and round up capital to buy the business unit being sold, which can often be accomplished through a leveraged buyout.
What Can a Private Equity Investor Control in a Deal?
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