Glossary - Carve-out
A carve-out in the context of finance and legal agreements usually refers to a provision or transaction where a portion of a company is separated from the main organization and sold or operated independently. It can also denote specific exclusions in legal documents or agreements, specifying scenarios or assets that are not covered by the general terms of the document.
Also known as
- Spin-off
- Exclusion Provision
Use cases examples
- Merger and Acquisition Agreement: The carve-out agreement specified that the parent company would retain the intellectual property rights, while the manufacturing facilities would be sold to the acquirer.
- Venture Capital Term Sheet: The term sheet included a carve-out for certain key employees to receive a specified percentage of proceeds in the event of a sale or public offering, separate from the equity held by other shareholders.
Considerations for investors
- Investors need to evaluate the impact of carve-outs on the overall value of their investment, considering both the immediate financial implications and long-term strategic value.
- Detailed due diligence is required to understand the specifics of the carve-out, including legal, financial, and operational risks.
Considerations for founders
- Founders should pay close attention to carve-out clauses in agreements to understand what assets or liabilities are being excluded.
- Negotiating carve-outs can protect valuable aspects of the business or provide founders with leverage in negotiations, such as retaining certain revenue streams or intellectual property rights.
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