Glossary - Equity Carve-Out
An equity carve-out is a type of corporate restructuring in which a company creates a new, independent company by selling or distributing new shares of its existing business. This can allow the parent company to capitalize on a subsidiary by turning it into a separate public company. The parent company typically retains a significant portion of the newly formed entity, which allows it to benefit from the subsidiary's growth while potentially unlocking shareholder value.
Also known as
- Partial Spin-off
- Subsidiary IPO
Use cases examples
- Initial Public Offering (IPO) Prospectus: In the case of XYZ Technologies, the company executed an equity carve-out by creating ABC Microchip, into which it spun off its microchip manufacturing division. Shares of ABC Microchip were then distributed to current shareholders and sold to the public via an IPO.
- Annual Report: Our equity carve-out of DEF Logistics allowed us to focus on our core competencies while enabling DEF to pursue more aggressive growth strategies as an independent entity, resulting in an increase in shareholder value for both companies.
Considerations for investors
- Investors should examine the growth potential and competitive positioning of the carve-out entity, as its performance post-IPO can significantly impact investment returns.
- It's important to understand the rationale behind the carve-out and how the parent company plans to use proceeds from the transaction, as these factors can provide insight into the future strategic direction and financial health of both entities.
Considerations for founders
- Founders should assess the strategic fit of the subsidiary to be carved out and ensure its business model is robust enough to thrive independently.
- Understanding the tax implications and how the carve-out will affect the financials of the parent company is crucial, as these transactions can be complex and influence the parent company's market valuation.
Get to know our world class tools and services
Transform your operations with world class tools
We have created several tools to help investors spot the best opportunities and manage their portfolio.
Let's unlock your business potential with Automations
Embrace the future with our tailored subscription service that combines strategic planning and practical implementation.