Equity carve-out

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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[edit]

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[edit]

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[edit]

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]

See also[edit]

References[edit]

  1. ^ "equity carve-out - Business Definition". Your Dictionary. Archived from the original on September 17, 2013. Retrieved September 1, 2013.
  2. ^ Investment Dictionary: Carve-out
  3. ^ Bell, Dean; Benard, Tracy. "An Accounting Focus can Enhance Carve-out Values". Transaction Advisors. ISSN 2329-9134.

External links[edit]