Brief Definition
A carve-out is a business strategy in which a company sells a portion of its business, often a subsidiary or a specific division, to an outside party, typically while retaining a stake in the entity.
Further Explanation
A carve-out is a business strategy in which a company sells a portion of its business, often a subsidiary or a specific division, to an outside party, typically while retaining a stake in the entity. This strategy allows the parent company to raise capital, focus on its core operations, or unlock value from a part of its business that may not fit its long-term strategy.
Example:
Company A has a profitable but non-core division, Division B, which specializes in technology solutions. Company A decides to carve out Division B by creating a new entity, Tech Solutions Inc. It sells 60% of Tech Solutions Inc. to private investors, raising capital for Company A to invest in its main business operations. Company A retains a 40% stake in Tech Solutions Inc., benefiting from its future growth while offloading the operational responsibilities.