A divisional buyout or carveout, in finance, is a transaction in which a corporate division, business unit, or

subsidiary A subsidiary, subsidiary company or daughter company is a company owned or controlled by another company, which is called the parent company or holding company. Two or more subsidiaries that either belong to the same parent company or having a s ...

is acquired using the same financial structuring as a leveraged buyout. Typically, in these transactions, the

financial sponsor A financial sponsor is a private-equity investment firm, particularly a private equity firm that engages in leveraged buyout transactions. Sponsors and management In addition to bringing capital to a deal, financial sponsors are expected to bring ...

will turn the acquired business into a standalone company, necessitating the creation of certain functions that were formerly provided by the parent company.

Divisional reverse leveraged buyout (D-RLBO)

A D-RLBO is a leveraged buyout of a division or subsidiary that subsequently comes to trade on the

public market A marketplace or market place is a location where people regularly gather for the purchase and sale of provisions, livestock, and other goods. In different parts of the world, a marketplace may be described as a '' souk'' (from the Arabic), ' ...

s. From the point of view of a divesting firm, the D-RLBO permits the sale of a

to its management and/or private investors who subsequently restructure its assets and capital structure to enhance overall firm value.

Avon Products Inc. Avon Products, Inc. or simply known as Avon, is an American-British multinational cosmetics, skin care, fragrance and personal care company, based in London. It sells directly to the public. Avon had annual sales of $9.1 billion worldwide in 2 ...

provides an example. Avon divested specialty jeweler Tiffany & Co. to private equity investors who subsequently accomplished an initial public offering (IPO).

References

*Hite, G., & Vetsuypens, M. R. 1989. Management buyouts of divisions and shareholder wealth. The Journal of Finance, 44: 953 – 970. *Singh, H. 1990. Management buyout: Distinguishing characteristics and operating changes priorto public offering. Strategic Management Journal, 11: 111–129. Corporate finance Private equity Corporate development {{private-equity-stub