In today’s dynamic M&A environment, companies and investors increasingly rely on strategic carve‑outs for value creation as a strategic lever. A carve‑out occurs when a parent company separates a business unit or subsidiary and sells or spins it off. When executed effectively, carve‑outs become more than mere divestitures: they become growth engines! In 2025, the carve‑out landscape has shifted in several meaningful ways. This EXA article re‑examines how companies and PE sponsors approach these transactions.
Why the Momentum for Carve‑Outs Has Strengthened
First, parent companies face mounting pressure to show meaningful returns on invested capital and to shed non‑core assets.
According to a recent survey by AURELIUS Investment Advisory, more than 80% of respondents expect carve‑out activity to increase in 2025, which is up from 66% a year earlier.
At the same time, PE funds hold massive dry powder and seek assets they can scale, optimize, and exit profitably. In the US and Canada, for example, 83 carve‑out deals in 2025 already reached approximately US$20.56 billion in announced value.
Second, carve‑outs offer a way to deploy capital when traditional exits (like IPOs) remain challenging for us.
Third, improved governance discipline, higher investor expectations, and digital transformation pressures make carve‑outs not just optional, but strategic.
Organizations aim to focus on what they do best, rotate capital away from under‑performing units, digitalize the remaining core, and align leadership and operations accordingly.
In short, 2025 presents a fertile environment for companies and sponsors to view carve‑outs as more than exits; they are growth platforms.
The Strategic Carve‑Outs for Value Creation
What makes carve‑outs compelling from a value creation standpoint? Several key dynamics drive the opportunity:
Sharper Strategic Focus: By separating a non‑core business, a parent company can direct leadership attention, resources, and capital to fewer, higher‑return opportunities. The carved‑out entity also gains clarity of purpose and often a management team more closely aligned with its objectives.
Unlocking Hidden Value: Diversified firms often suffer a "conglomerate discount", where the market fails to value each unit properly due to complexity, opaque reporting, or legacy structure. By separating a unit, its value stands on its own, and buyers (or new owners) can invest in its potential unencumbered by legacy constraints.
Operational Upside Under New Ownership: PE sponsors and other buyers often believe they can apply specialized operating models, cost discipline, digital tools, and build‑out strategies more effectively in a carved‑out business. For example, a Bain & Company report indicates that well-executed carve-outs have delivered IRRs roughly 20 percentage points higher than typical healthcare buyouts.
Better Capital Deployment: For investors with large pools of dry powder, carve-outs offer a way to deploy capital into assets that other sponsors may have overlooked. In fact, carve‑outs accounted for an estimated 10.6% of US buyout deals in H1 2025.
Faster Value Realization: Because a carve‑out often starts with an operating business rather than a green startup, the timeline to realize value can be shorter, provided execution is strong. It makes strategic carve-outs for value creation more attractive in a market of moderate growth and higher capital costs.
However, capturing that value isn’t automatic; execution discipline and pre‑work matter hugely.
What Has Changed Regarding Carve-Outs in 2025?
While the opportunity remains real, the dynamics around carve‑outs have significantly evolved. Take a look at these conditions:
Elevated competition and valuations: According to Bain’s latest data, the average multiple on invested capital (MOIC) for carve‑outs since 2012 has dropped to ~1.5×, slightly below the average for all buyouts. Top‑quartile carve‑outs still approach ~2.5× MOIC, but the margin of advantage has narrowed.
Greater complexity in operating separation: As the DealEdge analysis highlights, revenue growth in carve‑outs has shrunk from ~31% historically to ~17% more recently; margin expansion has dropped from ~29% to ~2%.
Higher feel for transition and stand‑alone readiness: Market commentary in 2025 emphasizes that the distinction lies in how quickly the carved business reaches Day 1 readiness, how clean the separation is, and how robust the transition services (TSAs) and the IT/HR separation plan are.
Sector focus and deal size shifting: The US and Canada dominate count and value, with industrials leading deal categories (~US$11.01 billion across two deals in 2025), followed by energy & utilities (~US$2.92 billion across seven deals).
Macro pressures are increasing: higher cost of capital, regulatory complexity, digital transformation demands, and investor activism are driving companies to consider carve‑outs more seriously.
These shifts imply that while the opportunity remains strong, the stakes for execution are even higher. Firms that treat carve‑outs as a routine divestment risk falling short; winners treat them as a strategic, value‑creation initiative.
7 Steps of Strategic Carve‑Outs for Value Creation
To turn a carve‑out into a value creation engine, organizations should follow a disciplined, execution‑oriented playbook.
Here are key steps and practices:
1. Define the “Core” vs “Non‑Core” Clearly
Start with a rigorous assessment of the parent’s strategy. What business activities give you the right to win, will sustain growth, and earn returns above hurdle when adjusting for complexity tax?
2. Assess the Unit’s Standalone Viability Early
Map out all dependencies—legal entities, contracts, IP, systems, shared services, HR, supply‑chain, vendor relationships.
Identify what must be separated, what can remain under TSAs, and what needs a new structure. The unit must pass a "can we stand alone?" test. It is critical as poor preparation is a significant cause of carve‑out under‑performance.
3. Structure the Transaction with Value Creation in Min
Transaction design should embed value creation levers from the start. That means linking the separation structure (what gets carved out when, how services are transitioned) with the go‑forward strategy (growth plan, operating model, digital roadmap).
4. Prepare Day 1 Readiness and Transition Services (TSAs)
The success of a carve‑out often hinges on the first 100 days. Set clear TSAs, milestones, governance, and begin stand‑alone infrastructure early. Under‑estimating the cost or complexity of separation (IT, HR, vendors, compliance) remains a top risk.
5. Execute a Focused Value‑Creation Plan
Carve‑outs deliver value when new owners act decisively. That may include management changes, cost rationalisation, digitisation, commercial growth initiatives, and add‑on acquisitions (buy‑and‑build).
The PE Value Creation Report for 2025 shows revenue growth contributes ~54% of value creation on average (margin ~14%, multiple expansion ~32%).
6. Monitor, Adjust, and Prepare Exit Pathway
Even with strong execution, carve‑outs benefit from active monitoring, governance, and exit planning. Will the business exit via trade sale, IPO, or secondary buyout? Owners should build that roadmap early. The narrowing MOIC differential noted by Bain suggests fewer shortcuts to value—so sponsors must stay purposeful.
7. Communicate the Story to Market
Carve‑outs succeed in part because the new entity or parent company presents a straightforward value narrative—investors understand what changed, how the business will perform, and why this unit is now better positioned. That clarity often leads to higher valuation multiples.
Real‑World Example for Strategic Carve‑Outs for Value Creation
Consider a large industrial conglomerate, “IndusCo,” which operates five business divisions: heavy‑equipment manufacturing, industrial services, consumer materials, digital sensors, and renewable components.
IndusCo finds that its heavy‑equipment unit has slower growth, high capital intensity, and a different customer base than the rest of its portfolio.
Step 1: IndusCo defines its core strategy, including light manufacturing, digital sensors, and renewable components as differentiators; heavy equipment is non‑core.
Step 2: It engages a carve‑out of the heavy‑equipment unit, mapping out all shared services, vendor contracts, IP/technology dependencies, employee overlaps, and legacy systems. It establishes a new standalone entity, "HeavyCo," and agrees to the TSA terms for IndusCo's support for 12 months.
Step 3: IndusCo and the buyer (a mid‑market PE fund) structure the deal such that the buyer takes a majority stake, commits to growth in emerging markets, and digitalizes the equipment business over the next 3 years.
Step 4: On Day 1, HeavyCo launches with its own CEO, a new ERP, vendor renegotiations, and a leaner cost structure. The buyer also invests in digital services to retrofit equipment with predictive‑maintenance sensors.
Step 5: Over years 1‑3, HeavyCo grows revenue at ~15% annually (versus historical 5 % under the parent), improves margin via service revenues and digital add‑ons, and prepares for exit, via trade sale or recap.
Where IndusCo previously valued heavy equipment at a discount relative to its other units, the carved‑out HeavyCo now transacts (or is valued) at a higher multiple.
IndusCo redeploys proceeds into its more rapidly growing digital sensors business. The buyer delivers a high‑return exit.
While that is a hypothetical, real‑world data support the theme. The carve‑outs can outperform, but only when built and executed as strategic value‑creation vehicles.
Conclusion
With capital deployment urgency high, structural pressures on corporates mounting, and investor expectations elevated, carve‑outs can deliver differentiation. However, the diminishing margin of advantage means companies cannot rely on the old "carve it and someone will buy it for a premium" model. They must treat these transactions as full‑blown strategic initiatives; one part portfolio optimization, one part growth strategy.
For corporates, carving out a non‑core unit enables a sharper strategy, reduced complexity, and redeployment of capital into faster‑growing assets. For PE sponsors, carve‑outs offer a ready platform to deploy expertise, invest for growth, and exit at attractive multiples. For both sides, the winners in this era will be those who link separation and value creation from Day 1.
In 2025, carve‑outs have evolved from a niche tool into a strategic carve‑outs for value creation. They deliver sharper focus for the parent company, accelerated performance for the carved-out entity, and substantial returns for investors.
The imperative now is not simply to divest, but to strategically carve out—to separate with purpose, stand up with speed, invest for growth, and exit with value. The winners will turn carve‑outs into engines of value creation, not just deal count.
By focusing on the right assets, building the proper structure, and executing with operational precision, organizations can truly harness the strategic carve‑outs for value creation to reshape their portfolios, accelerate growth, and deliver superior returns.