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 A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loan ...

. 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 markets. 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 with the purpose of enhancing overall firm value. Avon Products Inc. provides an example. Avon divested specialty jeweler Tiffany & Co. to

private equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a ty ...

investors who subsequently accomplished an

initial public offering An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...

(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