Achieving greater returns for private equity in carve-out transactions

Several industries and sectors appear to be on the verge of transformative change—with digital, artificial intelligence, alternative fuels, and changes in consumption patterns being a few of the key contributing factors. 

Carve-outs are an effective way to reconfigure companies that are holding onto declining businesses, growth businesses not core to their portfolio, or assets that are less than productive without sufficient capital. But whether you are a private equity investor looking to scale or take costs out of a business, carve-outs should be a core competency to consider.

Right now, however, it’s strategic buyers who acquire an overwhelming majority of carve-out assets, accounting for more than 70% of carve-out transactions by volume and value between 2019 and 2023—and closer to 85% within the tech and healthcare industries. This underscores a perception that strategic buyers are better equipped to absorb carve-out assets, can create greater value on these transactions, and will therefore pay higher for the asset.

But there is potential to achieve more balanced odds between strategic and private equity investors when it comes to winning carve-out transactions.

This report identifies some key areas of the carve-out transaction lifecycle that have odds in favor of private equity buyers and what can be done in those areas where the odds seem to favor strategics.