Equity carve-out

Equity carve-out (ECO), also known as a split-off IPO or a partial spin-off, is a type of corporate reorganization, in which a company creates a new subsidiary and subsequently IPOs it, while retaining management control.^[1]^[2] Only part of the shares are offered to the public, so the parent company retains an equity stake in the subsidiary. Typically, up to 20% of subsidiary shares is offered to the public.

Entities

The transaction creates two separate legal entities, the parent and the daughter company, each with its own board, management team, CEO, and financials. Equity carve-outs increase the access to capital markets, giving the carved-out subsidiary strong growth opportunities, while avoiding the negative signaling associated with a seasoned offering (SEO) of the parent equity.

Advantages

If the parent company wants to fully divest the subsidiary, then an equity carve-out allows a prior evaluation of the subsidiary's market value and creates a credible transaction history.

Challenges

Challenging accounting issues can arise when acquiring carve-outs. Carve-out entities need a clear understanding of what their new stand-alone status means in terms of numerous accounting concepts and they must establish accounting policies in line with their operations.^[3]

References

↑ "equity carve-out - Business Definition". Your Dictionary. Retrieved September 1, 2013.
↑ Investment Dictionary: Carve-out
↑ Bell, Dean; Benard, Tracy. "An Accounting Focus can Enhance Carve-out Values". Transaction Advisors. ISSN 2329-9134.

External links

Corporate finance and investment banking

Capital structure

Transactions
(terms / conditions)

Equity offerings	At-the-market offering Book building Bookrunner Corporate spin-off Equity carve-out Follow-on offering Greenshoe Reverse Initial public offering Private placement Public offering Rights issue Seasoned equity offering Secondary market offering Underwriting

Mergers and acquisitions	Buy side Control premium Demerger Divestment Drag-along right Management due diligence Managerial entrenchment Minority discount Pitch book Pre-emption right Proxy fight Post-merger integration Sell side Shareholder rights plan Special situation Squeeze out Staggered board of directors Stock swap Super-majority amendment Tag-along right Takeover Reverse Tender offer

Leverage	Debt restructuring Debtor-in-possession financing Financial sponsor Leveraged buyout Leveraged recapitalization High-yield debt Private equity Project finance

Valuation

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