Many business groups have, over time, accumulated very different operations under the same corporate umbrella: an industrial division alongside a services business, a subsidiary in a distinct geographic market, or real estate assets embedded within an operating company. More often than not, this heterogeneity is not the product of deliberate strategy, but the residue of years of organic growth and opportunistic acquisitions.

A carve-out is the tool that allows a company to surgically separate part of its business —a division, subsidiary or set of assets— with the aim of giving it a standalone identity and, in doing so, unlocking value that was hidden within the original structure. The underlying premise is almost always the same: the parts are worth more apart than together.

In an M&A context, carve-outs are common across the spectrum, from large corporations to family-owned groups in the Spanish middle market: the owner who wants to sell the industrial operation while retaining the underlying real estate; the company divesting a non-core line to concentrate resources; or the group seeking to bring in a financial partner for a high-growth unit without diluting the broader business.

Rationale for a Carve-Out

The motivations are varied, though they almost always converge on the same diagnosis: the carved-out unit is worth more on its own than embedded within the group.

  • Strategic focus: divesting non-core units to restore management focus and redeploy capital more effectively.
  • Liquidity generation: funding new investments, reducing debt, or crystallising the value of a mature asset.
  • Attracting specialist capital: a financial or strategic investor may be prepared to pay a premium for an isolated division that it would not pay for the group as a whole.
  • Multiple re-rating: a high-margin unit buried inside a diversified conglomerate trades at a discount; separated, it can command substantially higher valuation multiples.
  • Financial restructuring: the separation of assets can facilitate negotiations with creditors or support the raising of new financing.

Deal Structures

Not all carve-outs are alike. The appropriate structure depends on the objective pursued, the profile of the buyer or investor, and the tax and legal implications of each alternative.

  • Trade sale. The parent transfers the division or subsidiary to a third party —a strategic acquirer or financial investor. This is the cleanest structure and the one that generates immediate liquidity.
  • Minority stake sale. The carved-out unit is incorporated into a new subsidiary into which an investor acquires a minority interest, with the parent retaining majority control. This approach generates fresh capital and establishes a market reference for future valuation. Repsol applied a variant of this structure when it carved out its upstream exploration and production business, bringing in the fund EIG at 25% and crystallising value that the market had consistently underpriced within the broader energy group.
  • Spin-off. The parent distributes shares in the new entity to its own shareholders, creating a fully independent company. In Spain, this is typically structured as a partial demerger (“escisión parcial”) under the Corporate Income Tax Act.
  • Split-off. A variant of the spin-off in which shareholders of the parent choose whether to exchange their existing shares for shares in the new entity, reducing the parent’s shareholder base. Less common in the Spanish middle market, but with relevant applications in family groups where shareholders hold divergent strategic interests.
  • Joint venture. The carved-out unit is integrated into a shared structure with a third party —appropriate where collaboration between operators generates more value than competition.

Perimeter Definition: What Are We Actually Selling?

One of the most common mistakes in a carve-out is launching the sale process before having precisely defined which assets, contracts and people form part of the unit being separated. This perimeter definition phase seems straightforward, but in practice it consumes more time than anticipated and, if resolved poorly, leads to last-minute price adjustments.

Three elements require particular attention. Intellectual property: in businesses with proprietary software, data or brands, it must be determined whether the IP transfers to the new entity, is licensed back to the parent, or remains with the parent under a licence granted to the carved-out unit. Group contracts: many supplier agreements —particularly software licences and insurance policies— are held at the corporate level and require novation to transfer the contractual relationship to the new counterparty, which gives suppliers leverage to renegotiate terms. Shared personnel:employees who serve multiple divisions simultaneously must be allocated clearly before engaging with potential buyers.

Standalone EBITDA and Stranded Costs: The Calculation That Sets the Price

In a carve-out, the division’s historical EBITDA is typically an unreliable starting point. What matters to the buyer —and what the seller must prepare rigorously— is the standalone EBITDA: what the unit would generate if it had to pay for all its services independently, without drawing on shared group resources.

The adjustment can move in either direction. In many cases, the division has been absorbing an allocated share of centralised corporate overhead —senior management, finance, IT infrastructure— that will disappear or be renegotiated at market rates, improving the normalised margin. In others, the reverse is true: the division benefited from services provided by the parent that were never invoiced internally, and which it will now have to source externally.

Stranded costs are the risk most frequently underestimated on the vendor side. When a division is removed, the parent is left carrying structural overhead —office leases, software licences, corporate executives— that was previously distributed across multiple units. Without a plan to reduce or reallocate these costs concurrently with the disposal, the parent’s consolidated margin will be permanently impaired.

Preparing a Financial Fact Book with segregated historical financial statements, documented cost allocation methodologies and a standalone projection is, in practice, a prerequisite for any process involving institutional buyers.

Spanish Tax Framework: Partial Demerger and Tax Neutrality

Where the separation is structured as a partial demerger of a business line (“escisión parcial de rama de actividad”), the Spanish Corporate Income Tax Act allows the transaction to fall within the special merger, demerger and asset contribution regime (Articles 76 et seq. of the LIS). This regime defers taxation on the latent gains until a subsequent disposal to a third party —a difference that can be highly material to the economics of the transaction.

For the regime to apply, the transferred unit must constitute a branch of activity (“rama de actividad”): a set of assets and liabilities forming an autonomous economic unit capable of operating independently from day one. The Spanish Tax Authority (DGT) has developed extensive guidance on this concept. Additionally, the transaction must be driven by valid business reasons —it cannot be structured primarily for tax purposes— and must be notified to the tax authorities within the prescribed deadlines.

Labour Law: Automatic Transfer of Employees Under Article 44 ET

An aspect that frequently surprises those approaching a carve-out in Spain for the first time is the statutory employee transfer regime. When an “economic entity that retains its identity” is transferred, Article 44 of the Workers’ Statute (Estatuto de los Trabajadores) imposes the automatic and mandatory transfer of employees to the acquirer, which inherits their seniority, salary and existing conditions.

Of particular significance from a risk perspective: seller and buyer are jointly and severally liable for three years for employment and social security obligations arising prior to the transfer. This makes employment due diligence a non-negotiable step for any buyer, and means the vendor should ensure its employment and social security position is fully regularised before launching a process.

The TSA: Transitional Service Agreement

Once the decision to carve out has been made, the greatest source of operational friction tends to be the interdependencies that exist between the separated unit and the rest of the group: shared IT systems, contracts held in the parent’s name, teams serving multiple divisions, or a centralised treasury function managing liquidity across all entities.

The Transitional Service Agreement (TSA) is the contract under which the parent continues to provide defined services to the separated unit for a limited period —typically between six and eighteen months— while the latter builds its own autonomous infrastructure. Its negotiation should include explicit service levels, market-rate pricing and, critically, exit milestones that incentivise the buyer to complete the transition without delay.

A poorly negotiated or absent TSA is one of the leading causes of post-closing friction. Its terms must be defined during the preparation phase of the transaction, not after signing.

Valuation Impact

The most immediate effect of a well-executed carve-out is multiple expansion. A division that, within a diversified group, was valued at a conglomerate discount can command substantially higher multiples when it operates and is presented to the market as a standalone business, with its own clean EBITDA, its own management team and its own strategic narrative.

It is not uncommon for a high-margin industrial division, buried within a diversified group, to achieve an EV/EBITDA multiple in a standalone sale significantly above what it would have obtained as part of the whole. Separating in order to sell well is, in many cases, the most powerful value creation lever available to the business owner.

Risks and Challenges of a Carve-Out

A well-executed carve-out can strengthen both parties involved, but it also presents significant challenges that can jeopardise its success.

  • One of the primary risks is the absence of clear leadership and communication within both organisations. Without a well-defined structure, coordination failures can emerge and delay the transition. Compounding this is the complexity of financial management: the carved-out unit must establish its own administrative infrastructure, and if this transition is not handled properly, errors in financial reporting and difficulties with regulatory compliance are likely to follow.
  • A further challenge is the impact on employees. Uncertainty about the future of the new entity can affect morale and the retention of key talent. Mitigating this risk requires transparent communication and the implementation of retention incentives to ensure stability within the team.
  • Cultural differences can also prove problematic, particularly where the carved-out unit is merged with another company or receives external investment. A lack of alignment in values, management styles and strategic objectives can impede collaboration and integration. Addressing this requires cultural alignment programmes to be designed from the outset of the process.
  • Underestimating the cost of autonomy is another frequent pitfall. The resources required for the unit to operate independently — its own finance function, IT systems, insurance — are routinely underestimated. These incremental costs erode the standalone EBITDA presented to the market, with a direct and proportionate impact on price.
  • Operational continuity and supply chain management also demand close attention. A transition that is not handled smoothly can result in production disruptions, delivery delays and customer attrition. Managing supplier and customer relationships must be treated as a priority throughout the separation process.
  • From a regulatory standpoint, legal compliance cannot be an afterthought. Failure to observe local and international regulations can lead to penalties and litigation. Companies must engage specialist legal counsel in each relevant jurisdiction before and during the transaction.
  • Finally, the identification of synergies between the parent and the new entity is a factor that is often overlooked. If opportunities for collaboration and resource optimisation are not mapped out in advance, long-term profitability and growth can be compromised. A clear strategy for maximising the value of the transaction is essential to its success.

Conclusion

A carve-out is one of the most powerful value creation tools available to a business owner, but also one of the most demanding in terms of preparation and execution. Its success depends not on the decision to separate, but on the quality with which that separation is designed: perimeter definition, legal and tax structure, standalone EBITDA build, management of the employment framework, and the narrative constructed for the market.

When done well, it allows each part to be worth more than it was as a whole. When improvised, it can impair both parts simultaneously.

If you are considering the separation of a business unit within your group, Maraz Corporate Finance can help you define the optimal structure and execute the transaction successfully. Contact us.

 

Javier de Rojas Roca de Togores

Partner - Maraz Corporate Finance