Tackling Carve-Outs: Important Issues in Sales of Divisions and Subsidiaries
by Gibson, Dunn & Crutcher LLP
Sales of divisions or subsidiaries, so-called “carve-outs,” are among the most complex M&A transactions. Carve-outs often necessitate not only a complicated division of assets and liabilities between the parent and the carved-out business, but also a comprehensive understanding of the carved-out business and how it will operate once it is separated from its parent. Nonetheless, these transactions have been steadily increasing over the last five years, possibly as an avenue for sellers to unlock growth and stockholder value and as a way for buyers to effectively use the extraordinarily low interest rates and the historic levels of cash that many corporations have built up on their balance sheets.
In the past five years, in the U.S., the number of carve-out M&A transactions per year has been increasing relative to the number of non-carve-out transactions, with carve-out transactions exceeding 50% in number of U.S. deals in 2012. In addition, the aggregated value of carveout transactions per year has shown steadier growth than non-carve-out M&A transactions.
Included in this edition of the M&A Report are two articles that address important issues in carve-outs. The first article discusses issues in connection with the transfer of liabilities in a carve-out transaction, and the second describes the importance of stand-alone financial statements for the business to be carved out.