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