Equity carve-out
Also known as: IPO carve-out
A carve-out, also called an equity carve-out, is when a parent company sells a minority stake in one of its subsidiaries to the public through a separate , while keeping majority ownership and control of that subsidiary. The subsidiary becomes its own publicly traded company with its own price, even though the parent still consolidates it and directs its strategy.
Carve-outs let a parent company raise cash and give the market a way to value a business unit that might otherwise be hidden inside a larger, more diversified company. If the subsidiary operates in a different or has a different growth profile than the rest of the parent, giving it a separate can help the market price it more accurately, which can in turn highlight value in the parent's remaining stake.
A carve-out differs from a , which distributes shares of the subsidiary directly to existing parent without raising any new cash, and from an outright sale, which gives up control entirely. Carve-outs are often, though not always, a first step toward a full separation, with the parent later spinning off or selling down its remaining stake once the subsidiary has an established trading history and its own public base.