Carve-out — separating and selling part of a company
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A carve-out is not a small company sale. The difficult part is not the buyer but the question of what exactly is being sold: which contracts, which employees, which machines, which software — and which services the unit has so far drawn from head office without them ever being priced individually.
Whoever takes up this definition only in the negotiation is negotiating over an object the two sides understand differently. That is why a carve-out begins with the reconstruction: what would this unit look like if it were a company of its own?
When a carve-out makes sense
Focus on the core business
Units that tie up management attention without carrying the strategy.
A part without a successor
Succession is settled for the company as a whole, but not for one unit.
A unit worth more elsewhere
For a competitor or a specialised buyer, the same unit can be worth considerably more, because it unlocks synergies there.
Releasing capital
The proceeds finance the core business — see corporate financing.
The perimeter: what exactly is being sold
In detail, the following have to be assigned: customer and supplier contracts, employees and their contracts, machinery and operating equipment, inventories, lease and rental agreements, trademarks, licences, software and data, and permits.
The real crux is shared resources — management, accounting, IT, warehousing, purchasing. They cannot be divided; they can only be replaced or continued on a transitional basis.
Figures that hold up without the rest of the company
A standalone profit and loss account is built for the unit — with realistic costs for services previously provided by head office and arm’s-length transfer prices for internal supply relationships.
A unit whose result arises only from favourable group allocations loses that advantage with the sale — and that will be found in the review. More under company valuation.
Structure and transition
Asset deal or prior spin-off
Either the assets and contracts are transferred directly, or the unit is first spun off into its own legal entity which is then sold. The second variant needs lead time but makes the transaction simpler.
Consents
Many customer, lease and licence contracts cannot be transferred without consent — that list determines the timeline.
Employees
In a transfer of undertaking, the employment relationships pass by operation of law — in Germany under § 613a BGB, in Austria under the AVRAG. The assignment of the affected persons is to be clarified beforehand.
Transitional services
Continued provision of IT, accounting, purchasing or logistics for a limited period against remuneration, with a term and an exit plan.
A note on roles: corporate, employment and tax structuring belong with lawyers and tax advisers; we structure the transaction and run the process. This is not legal advice.
The sale process
The circle of buyers comprises competitors, specialised strategic acquirers, private equity firms with a platform strategy — and the unit’s own management (see management buy-out).
Discretion is particularly delicate in a carve-out, because the unit’s employees and customers are meant to carry on working while negotiations run. The regular process is described under selling your company.
Frequently Asked Questions
- What is a carve-out?
- The separation of a business unit, site or subsidiary from a company in order to set it up independently or sell it.
- How is a part of a company valued?
- On the basis of a standalone profit and loss account for the unit, adjusted for intra-group advantages and supplemented by the costs it will have to bear itself in future.
- What happens to the employees?
- In a transfer of undertaking, the employment relationships assigned to the unit pass to the acquirer by operation of law. Which persons are assigned needs to be clarified beforehand.
- What are transitional services?
- Services such as IT, accounting or logistics that the seller continues to provide to the buyer for a limited period after closing so the unit remains operational — with remuneration, a term and an exit plan.
- How long does a carve-out take?
- Longer than an ordinary sale, because the perimeter definition, the financial basis and the required consents all have to be prepared.
- Does the unit have to be moved into its own legal entity first?
- Not necessarily. An asset deal is possible; a prior spin-off simplifies the sale but needs lead time and has to be reviewed for tax.
Related insights
If you want to divest a unit, the initial conversation clarifies free of charge how it can be delineated and which circle of buyers is eligible.