Answers / Financial Due Diligence
What is the difference between a 'carve-out' and a 'standalone' cost, and how would you approach analyzing each in the context of financial due diligence?
A core Financial Due Diligence interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
A 'carve-out' cost refers to the cost of a specific business unit or division, while a 'standalone' cost refers to the cost of the company as a whole, including all its business units and divisions. When analyzing a carve-out cost, I would focus on the specific cost structure of the business unit, including its revenue and expense streams, as well as its assets and liabilities. In contrast, when analyzing a standalone cost, I would consider the company's overall cost structure, including its corporate overhead and shared services costs.
WHAT INTERVIEWERS LISTEN FOR
- ✓Carve-out: separating a business unit from its parent group
- ✓Standalone cost: true cost to operate independently vs allocated charge
- ✓Adjust EBITDA for under-/over-allocated shared services
- ✓TSA reliance and stranded costs are key considerations
COMMON MISTAKES
- ✗Inability to separate carve-out costs
- ✗Inconsistent allocation of shared services costs
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