Carve-out: Cleanly Separating and Selling Parts of a Company

A carve-out is the separation of a defined part of a company for sale. What is sold is not the whole company, but a division, a business area, a product line or a subsidiary. The seller continues to exist afterwards and carries on the remaining parts.

The core of the task is the separation. The part being sold is usually closely interwoven with the rest — through shared IT, shared staff, shared contracts. Untangling this interweaving is the actual work of a carve-out. How we support the separation and sale of a business area is set out on the service page.

How does a carve-out work?

A carve-out runs in four phases: delimitation of the unit, legal and operational separation, sale, and a transition phase with services from the seller. The first two phases often take more time than the sale itself, because the buyer wants to acquire a unit that functions on its own from day one.

1. Delimitation (perimeter): Which employees, contracts, assets, brands and data belong to the unit being sold, which stay?
2. Separation: legal independence (for example by hive-down into a company of its own) and operational disentanglement of IT, accounting, purchasing and personnel.
3. Sale: valuation of the unit as a stand-alone company, buyer approach, due diligence, contract.
4. Transition: transitional service agreement (TSA) until the buyer has built up its own structures.

The legal framework for Germany and Austria is summarised in this overview:

Topic	Germany	Austria	Source, retrieval
Legal independence	Demerger or hive-down of parts of assets as a whole to an existing or new legal entity	Demerger under the Spaltungsgesetz	§ 123 Abs. 2 and 3 UmwG, gesetze-im-internet.de, 28.09.2026
Employees	Acquirer enters into the existing employment relationships on transfer of a part of a business; notification in text form, objection within one month	Acquirer enters into the employment relationships as employer; objection only in certain cases	§ 613a Abs. 1, 5, 6 BGB; § 3 Abs. 1 and 4 AVRAG, RIS, 28.09.2026
Tax-neutral demerger	Book-value treatment only if one business unit (Teilbetrieb) passes and one remains; excluded if the demerger prepares a sale to outsiders (five-year period)	Umgründungssteuergesetz, to be examined separately	§ 15 Abs. 1 and 2 UmwStG, gesetze-im-internet.de, 28.09.2026
Works council	Information and consultation on demerger of operations in companies with more than 20 eligible employees	Arbeitsverfassungsgesetz, to be examined separately	§ 111 Satz 3 Nr. 3 BetrVG, gesetze-im-internet.de, 28.09.2026

Sources: § 123 UmwG, § 613a BGB, § 15 UmwStG, § 111 BetrVG, § 3 AVRAG; all retrieved on 28.09.2026.

Definition and typical occasions

In a carve-out, a part of an integrated company is sold and detached from the group. Characteristic is the mutual dependence between the part being sold and the remaining business, especially for central functions such as IT, personnel, accounting and purchasing.

Typical occasions:

• Focusing on the core business, separating peripheral activities
• Sale of a division that no longer fits the strategy
• Dissolution of a holding as part of a succession, for example when a family branch wants to continue only one area
• Regulatory requirements or capital needs in the core business

A carve-out is to be distinguished from a spin-off, in which the unit is not sold but transferred to the existing shareholders, and from the sale of the whole company, in which no separation is necessary.

The central challenge: disentanglement and stand-alone capability

A detached area must be viable on its own. This is called stand-alone capability. As long as the area uses services of the parent, it is not fully so.

Disentanglement affects several levels:

• IT systems: shared ERP, accounting and communication systems must be separated or rebuilt, including the separation of data.
• Contracts: customer, supplier and lease contracts must be allocated and in part renegotiated. Framework contracts that apply to both areas are the most frequent point of dispute.
• Personnel: employees must be allocated unambiguously. On the transfer of a part of a business, employment relationships pass by operation of law (§ 613a BGB, § 3 AVRAG). Shared functions — for example an accountant who works for both areas — are delicate.
• Licences and brands: rights to software, patents and brands must be cleanly divided or licensed.

This interweaving creates cost and complexity. Buyers include it in the valuation as stand-alone costs: the additional costs that arise when functions that the parent previously handled also have to be provided in future by the unit itself. A stand-alone valuation of the separated area before the buyer approach prevents these costs from coming onto the table only in the negotiation.

Transitional service agreements (TSA)

Rarely is the area sold fully independent on the first day. The parties therefore often conclude a transitional service agreement, TSA for short. In it, the seller undertakes to continue providing certain services to the buyer for a limited time.

Usual areas of a TSA are IT operations, accounting, payroll, purchasing and customer service. There is no universally valid term; it should be guided by the realistic build-up of the buyer's own structures.

A well-drafted TSA regulates at least:

Regulatory point	What it is about
Description of services	which services, in what scope and quality
Remuneration	cost basis, mark-up, billing
Term and extension	end date, extension options and their price
Exit	step-by-step handover of individual services, data migration
Liability	liability limits for service outages
Reverse services	services that the unit sold continues to provide for the seller (reverse TSA)

A poorly drafted TSA creates a dependency that extends far beyond the agreed period. It then causes cost and conflict long after the purchase price has been paid.

Share carve-out vs. asset carve-out

The structure decides the effort and risk of the transfer.

Feature	Share carve-out	Asset carve-out
Object of transfer	Shares of an existing subsidiary	individual assets and contracts
Preparation	Area must first be transferred into its own company, for example by hive-down	Allocation of every asset and contract necessary
Transfer of contracts	Contracts remain with the company	Contracts often transferable only with the consent of the counterparty
Employees	remain employed by the company; with prior hive-down the transfer of undertaking applies	pass by operation of law on transfer of a part of a business
Complexity of separation	generally lower in the sale, higher in preparation	generally higher in the sale
Tax classification	to be examined separately, observe demerger rules	to be examined separately

Those who first demerge the area and then sell it must know the anti-abuse rule of reorganisation tax law: if shares are sold to outsiders within five years of the tax transfer reference date, the tax-neutral book-value treatment of the demerger can lapse (§ 15 Abs. 2 UmwStG). The order of restructuring and sale should therefore be fixed with a tax advisor and a lawyer before the first step. If the area is transferred into its own company, the sale follows the rules for shares — how you sell shares in the hived-down subsidiary GmbH is described on the service page; the individual steps are shown by the process of a GmbH sale.

Patterns from practice: where carve-outs stall

Three constellations recur in mid-sized carve-outs. They are described here without reference to individual mandates.

1. The shared framework contract. A major customer purchases products of both divisions under a single framework contract. The buyer of the division sold wants the customer, the customer does not want to split the contract. Remedy: involve customers early, as soon as confidentiality allows, and provide a transitional arrangement in the purchase agreement.

2. The employee with a dual function. The head of controlling works in equal parts for both areas. Whether her employment relationship transfers depends on the allocation — and she can object. Remedy: clarify the allocation before notification and reflect the function in the TSA until the buyer has filled the position.

3. IT without a separation plan. ERP and databases are shared, historical data cannot be separated by division. The due diligence is delayed because the unit's figures are not robust. Remedy: have divisional accounts (carve-out financials) prepared before the start of the process and secure them through a vendor due diligence for the separated unit.

Time and complexity

A carve-out takes longer than the sale of a stand-alone company. The preparation, that is, disentanglement, build-up of the stand-alone structure and negotiation of the TSA, often takes more time than the actual sales process. The buyer examines separability intensively in the due diligence. The clearer the structure, the fewer discounts threaten.

Carve-out, transitional service agreement, stand-alone costs: the terms are listed in brief in the M&A glossary.

Frequently asked questions

What distinguishes a carve-out from a normal company sale?

In a normal sale the entire company changes owner. In a carve-out only a part is detached, while the seller keeps the rest. The separation of this part from the remaining business is the actual additional task.

What is a TSA for?

A transitional service agreement bridges the time in which the area sold is not yet fully independent. The seller continues to provide defined services, such as IT or accounting, until the buyer has built up its own structures. Scope of services, remuneration, term and exit should be regulated precisely.

Do the employees transfer automatically in a carve-out?

On the transfer of a part of a business by legal transaction, the acquirer in Germany enters into the existing employment relationships by operation of law (§ 613a BGB). The employees must be informed in text form beforehand and can object within one month. In Austria, § 3 AVRAG regulates the transfer.

Is a share or an asset carve-out better?

That cannot be said as a general rule. A share carve-out is often simpler in the transfer, but presupposes a company of its own. An asset carve-out is more flexible, but more laborious. The decision requires tax and legal advice, also because of the five-year period under § 15 UmwStG.

How long does a carve-out take?

Longer than a standard sale. A substantial part of the time goes into preparation: disentanglement, build-up of stand-alone capability and negotiation of the TSA. There is no robust flat duration; it depends on the degree of interweaving.

Why can a carve-out reduce the purchase price?

Because buyers price in the risks of incomplete separation and the stand-alone costs. Unclear transfers of contracts, shared IT or a shaky TSA create discounts. A clean, documented disentanglement reduces this uncertainty.