The art of carve-out financials: tips for sellers and buyers

Carve-outs are among the most complex transactions in M&A. Done well, carve-out financials unlock value by making the target’s economics clear; done poorly, they become the main source of delay, price erosion and post-close friction.

Why carve-out financials matter

For a seller, carve-out financials are the primary evidence of the standalone economics you are asking someone to buy. For a buyer, those same financials are the roadmap for risk assessment, deal pricing and the first 100-day value plan. Treating them as a compliance exercise or a defensive artifact guarantees friction. Treat them as a commercial asset and the whole process becomes faster, cleaner and more value-accretive.

For sellers: preparing top-notch carve-out financials

High-quality financials accelerate buyer confidence and shorten negotiation cycles. Aim for clarity, realism and traceability.

Practical steps:

• Allocate shared costs transparently. Show how finance, IT, HR, supply chain and other shared functions have been split. Use defensible drivers (headcount, transactions, time) and provide source files so buyers can see the math.

• Demonstrate standalone profitability and cash profile. Present P&L, cash flow and working capital on a run-rate basis, with clear assumptions about revenue, cost and seasonality after separation.

• Call out one-offs and transition costs. Be explicit about material one-time items the buyer should expect post-close (separation capex, contract termination fees, initial dual-run costs).

• Cross-check with operations. Numbers must align with operational realities; walk the buyer through key cost drivers with the ops leads involved.

• Validate early with auditors/advisors. Involving external advisors early reduces scope creep later and gives buyers confidence in the allocations and assumptions.
  
  

For buyers: diligencing carve-out financials

Good diligence turns seller disclosures into a clear risk map and an actionable plan for early value capture.

Practical steps:

• Stress-test allocations: Challenge the seller’s allocation logic. Would the target be able to run those services at the same cost after separation?

• Look beyond historical KPIs: Ask whether the presented numbers are fit for growth. How do margins and working capital behave under a growth scenario or after key customer changes?

• Scrutinise TSAs: Understand what services remain on the seller’s balance sheet, the duration and price of services, and the migration plan — TSAs are often where hidden costs materialise.

• Validate working capital needs: Verify assumptions on receivables, payables and inventory — small shifts here materially change financing needs.

• Hunt for hidden interdependencies: Identify services that are not on the financials but are operationally critical (shared licences, captive logistics, specialised labour).
  
  

Takeaway

Whether you are selling or buying, the success of a carve-out hinges on robust, credible and traceable financials. They are not just accounting schedules — they are the contract of trust between buyer and seller and the foundation for a smooth separation and fast value creation.