Framework library · M&A and corporate strategy
Carve-out strategy
A carve-out separates one business from the parent that runs it, ready for a sale, a spin-off or a joint venture. Most of the work is in the entanglements: shared networks, systems, contracts, people and sites. Each one is moved, copied, split or provided for a time under a transitional service agreement. The costs the parent will be left with are planned before the deal is priced, not discovered after it closes.
Use it when
- You have decided to sell, spin off or contribute to a joint venture a business that shares networks, systems or people with the rest of the group.
- A buyer will ask what comes with the business, what it will cost to run on its own, and what services you will provide after closing.
- You need to know the costs the parent will be left with before you agree a price.
- You are buying a business out of a larger group and need to judge whether the seller's separation plan is realistic.
Avoid it when
- You have not decided whether to separate the business. Decide that first with divestiture strategy or spin-off analysis.
- The business already runs on its own systems, contracts and sites. A sale agreement and a short handover list are enough.
- You mean an equity carve-out, the listing of a minority stake. That is a route to market. Compare it with the other routes in spin-off analysis.
How to run it
Draw the perimeter
List what is in (customers, contracts, assets, people, licences) and what stays with the parent. Write down every item where the answer is not obvious: those are the entanglements.
Sort each entanglement
Every shared asset, contract or service is moved to the separated business, copied, split, or provided by one side to the other for a period under a transitional service agreement.
Price the standalone costs
What the business will pay to run on its own: billing, finance, network operations, insurance, a board. The parent's cost allocation is not a guide; the real cost is often well above it.
Price the stranded costs
The parent's costs that do not leave with the business, such as shared systems, overhead and sites. Plan how each will be removed, and by when.
Write each service agreement with its exit
What is provided, by whom, for how long, at what monthly price, and how the recipient will stop needing it. Agree them at signing, not between signing and closing.
Plan day one
What must work on the first day the business stands apart: payroll, bank accounts, billing, customer service, network monitoring and the legal entity.
Work through it
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Mistakes to avoid
- Using the parent's cost allocation as the standalone cost. The buyer will rebuild the number, and the difference comes off the price.
- Service agreements with no exit plan. They roll over, and the parent goes on running part of a business it has sold.
- Leaving stranded costs until after closing. The parent's margin carries them until each one is removed.
- Drawing the perimeter around the organisation chart rather than the customers and contracts. Contracts that cover both businesses are where separations stall.
- Leaving shared network assets (ducts, sites, spectrum, interconnects) to the end, when they take longest to untangle.
Where it comes from
No single originator: carve-out planning is common practice in corporate separations. Its vocabulary of entanglements, transitional service agreements and standalone costs is described in practitioner writing such as Anthony Luu and Jannick Thomsen, "Solving the carve-out conundrum" (McKinsey, 2019), and, on the costs left with the parent, Anna Mattsson, Jamie Koenig and Tim Koller, "The cost of (un)doing business" (McKinsey, 2025, an excerpt from Valuation, eighth edition). Source.
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