What is an equity carve-out?
It's a form of corporate reorganisation in which a company creates a new subsidiary and then IPOs it, while keeping management control. Typically, up to 20% of subsidiary shares are offered to the public, with the parent company retaining an equity stake in the subsidiary and offering strategic support and resources.
Where have you heard about equity carve-outs?
Equity carve-outs are increasingly in the news as CEOs face pressure to sharpen their company's focus by divesting non-core operations.
What you need to know about equity carve-outs.
A company might use a carve-out strategy rather than a total divestiture for several reasons. Sometimes, for example, a business unit is deeply integrated, making it difficult for the company to sell the unit off entirely while keeping it solvent.
An equity carve-out allows a parent company to receive cash for the shares it sells now, while retaining a controlling interest in the new company.
A different carve-out option is a spin-off. Here, the company divests a business unit by making the unit its own standalone company.