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 (law), company completely or partially owned or controlled by another company, called the parent company or holding company, which has legal and financial control over the subsidia ...

is acquired using the same financial structuring as a

leveraged buyout A leveraged buyout (LBO) is the acquisition of a company using a significant proportion of borrowed money (Leverage (finance), leverage) to fund the acquisition with the remainder of the purchase price funded with private equity. The assets of t ...

. Typically, in these transactions, the financial sponsor 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 to enhance overall firm value. Avon Products Inc. provides an example. Avon divested specialty jeweler Tiffany & Co. to

private equity Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...

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 investm ...

(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