Too Many Financials in a Carve-Out? How to connect the dots?

In a carve-out, financial clarity isn’t optional; it’s the backbone of the deal. Multiple versions of “carve-out financials” often circulate - derived from one another, yet built for different purposes and telling slightly different stories.

That naturally raises key questions for buyers:

• Which view should you prioritise?

• Which one truly drives deal value?

• And which financials actually matter in SPA negotiations?

Part of the ambiguity also stems from the loose and inconsistent use of the term “carve-out financials.” It is often used as a catch-all for very different financial views — statutory carve-out financial statements, standalone financials, or deal-basis numbers — depending on the situation and objective.

For acquirers, the real challenge is rarely the lack of financials. It is understanding which financial view they are looking at, what question it answers, and where its limitations lie.

In one of my prior carve-outs, I spent significant time early on aligning with my PE client on the taxonomy, objectives, and use cases of the target’s financials presented by the sell-side. That early alignment paid off: clearer EBITDA adjustments, tighter SPA drafting, and fewer post-close clean-ups.

The three financial views that matter in a Carve-Out

1. Statutory Carve-Out Financials:

Question answered: What was the business under the parent, on a compliant accounting basis?

Statutory carve-out financials are audited financial statements prepared by carving out the target business from the parent’s consolidated accounts. They are typically required to meet regulatory, reporting, or financing obligations. They are more commonly available where the seller is listed, or where the target already exists as a distinct legal entity.

Prepared by: Seller finance team, with external auditors

Used by: Sell-side, regulators, lenders, and sometimes the buy-side (if available)

How they are built (at a high level): They start from the parent’s consolidated financials, define a carve-out perimeter, allocate shared costs using supportable methodologies, and apply applicable accounting standards (e.g., GAAP, IFRS, SEC rules where relevant).

Key limitations:

• Often unavailable in private mid-market transactions

• Allocation-driven and not designed to reflect true standalone economics

• Typically insufficient on their own for valuation or buy-side Quality of Earnings

Key nuance: Statutory carve-out financials are not always required to close a transaction. They are common in public or regulated deals, but frequently absent in private transactions unless explicitly required by lenders or buyers.

2. Standalone Financials

Question answered: What does this business cost to run independently, as a steady-state company?

Standalone financials model the business as if it were operating outside the parent organisation. They are not audited, but they are critical for understanding the true economic profile of the business post-separation.

Prepared by: Typically developed by sell-side separation advisors and then independently reconstructed, validated, and adjusted by buy-side advisors.

Used by: Both sell-side and buy-side teams

How they are built: Standalone financials typically start from carve-out or reconstructed historical data and then:

• Remove parent-level allocations

• Normalise for non-recurring items

• Add replacement or stranded costs

• Reflect TSA dependencies and exit assumptions

The objective is to arrive at a credible steady-state cost base for the business once separated.

Why they matter: Standalone financials are foundational to a credible Quality of Earnings. Dis-synergies, standalone cost uplifts, and TSA impacts are usually identified through this lens and then reflected in the QoE bridge. They also underpin buyer overlays, integration planning, and synergy modelling.

Importantly, standalone financials describe economic reality - not yet transaction pricing.

3. Deal-Basis Financials: Applying the Transaction Lens

Question answered: What EBITDA are we actually buying, paying for, and contracting around in this deal?

Deal-basis financials are not a separate parallel set of accounts. Instead, they represent the transaction-specific view derived from the standalone financials, shaped by negotiation, risk appetite, and deal mechanics. They translate standalone economics into a form that can be used for valuation, financing, and contractual purposes.

How they are formed: Starting from the standalone view, buyers determine:

• Which adjustments are accepted in pricing

• Which costs are treated as ongoing vs. one-off

• What EBITDA to anchor the multiple to

• What numbers to lock into the working capital peg and net debt

This view typically lives within the QoE bridge, valuation model, and SPA schedules; rather than as a formal “financial statement.”

Why they matter: Deal-basis financials directly influence:

• Bid valuation and enterprise-to-equity bridges

• Working capital mechanisms and earn-out structures

• Debt sizing and lender underwriting

• The definition of EBITDA embedded in the SPA

Two buyers can look at the same standalone financials and still arrive at very different deal-basis views, depending on their investment thesis and risk tolerance.

Final Thought

Carve-out financials are not a compliance exercise. They are a core driver of value, risk allocation, and post-close outcomes. Misalignment between financial views can distort valuation, weaken SPA protections, and create avoidable surprises after closing.

How These Views Fit Together: These views are not interchangeable; but they are connected and progressive:

• Statutory carve-out financials: What was the business under the parent?

• Standalone financials: What could the business look like on its own?

• Deal-basis financials: What are we actually buying and paying for?

So the next time you are handed “carve-out financials”, ask:

• Which question is this financial view actually answering?

• How does it reconcile to the other views?

• And which numbers are we truly anchoring the deal on?