What are the key differences in structuring a carve-out vs. a whole-company sale from a seller's perspective, and how do these differences affect the sale process and valuation?
A core M&A Advisory interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
A carve-out requires separating the target's operations, IT, employees, and contracts from the seller, which adds complexity, time, and cost. The seller must prepare carve-out financials and a transition services agreement (TSA). Valuation often includes a discount for separation risk and TSA dependency. The process may involve a dual-track approach. Whole-company sale is simpler, with audited historicals and no TSA. The seller can run a clean auction, potentially attracting a broader buyer pool and higher multiples.
WHAT INTERVIEWERS LISTEN FOR
- ✓Carve-out needs separation and TSA
- ✓Higher complexity and cost
- ✓Valuation discount for separation risk
- ✓Whole-company sale simpler, higher multiples
COMMON MISTAKES
- ✗Assuming carve-out valuation same as whole-company
- ✗Ignoring TSA dependency and risks
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