Key points
- A carve-out buys a business that has never run on its own. Its systems, contracts, people and data are entangled with the parent's, and the price must reflect the cost of untangling them.
- Separation costs are material: BCG found one-time costs of about 1% to 5% of the divested business's revenue across more than 50 divestitures, and up to 13% in large, complex carve-outs.
- Entanglement drives cost more than size. Roland Berger's 2026 survey of carve-out experts puts one-off costs for highly entangled carve-outs at up to 15% of the new company's revenue, with IT among the steepest increases in recurring cost.
- Transition services agreements buy time, not a solution. Every TSA needs an exit plan on the day it is signed.
- IT and ERP services are usually the last to come off a TSA. Start that work first.
Carve-out, spin-off, divestiture
| Term | What it means |
|---|---|
| Divestiture | The general term for a parent selling or otherwise disposing of a business. |
| Carve-out sale | A business unit sold to a buyer (often a private equity firm or a strategic acquirer) as a standalone company or into the buyer's group. |
| Spin-off | The business becomes an independent listed company, with shares distributed to the parent's shareholders. |
| Equity carve-out | Part of the business's shares are sold to the public in an IPO, with the parent usually keeping control. |
This guide is written from the buyer's side of a carve-out sale, which is where most of the separation work lands. A seller faces the same questions in mirror image, plus the costs left behind in the parent.
Why carve-outs are hard
A division inside a large group uses the group's shared services: its ERP, identity system, network, data centres, payroll, procurement contracts and often its brand. Its customer contracts may be held by another legal entity. Its people may report into group functions. Its data may sit in shared databases with other divisions' data. None of that was designed to be separated.
Entanglement, not size, is what drives cost. Roland Berger's survey of more than 50 carve-out experts in Europe and the United States (April 2026) found that one-off costs can reach up to 15% of the new company's revenue in highly entangled carve-outs, and that recurring costs rise by an average of 11% across functions once the business stands alone, with IT (+19.8%) among the largest increases.2 BCG's analysis of separation cost data from more than 50 divestitures found one-time costs ranging from about 1% to 5% of the divested business's revenues, reaching up to 13% in some large and complex carve-outs.1
The four kinds of separation cost
BCG distinguishes four types of cost, and a buyer's model needs all four:1
- One-time costs: building or buying standalone systems and functions, data migration, legal entity set-up, advisers.
- Transitional services: what the seller charges for the services it keeps providing after closing.
- Dis-synergies: the higher recurring cost of running alone, because group purchasing and shared services are gone.
- Stranded costs: costs left behind in the parent. A seller's problem, but one that shapes how hard the seller negotiates on TSAs.
Transition services agreements
A transition services agreement (TSA) has the seller keep providing defined services to the carved-out business for a period after closing, while the buyer builds or buys its own. A reverse TSA is the opposite: the carved-out business provides services back to the seller.
Scope
Each service is listed in a schedule: what it is, the service level, the volume, the price and the duration. Services that are not listed are not provided, so the schedules need to be built from a full inventory of what the business actually uses, including the services nobody thinks about until they stop (network, identity, security monitoring, licences used under the group's agreements).
Pricing
TSAs are commonly priced at cost or cost plus a margin. Sellers are not in the business of providing services and want to stop; some agreements step prices up over time to encourage the buyer to exit.
Duration and exit
Most TSAs are measured in months rather than years, with IT and ERP services usually the longest and the last to be switched off. Agree a long-stop date, the buyer's right to end individual services early, and the conditions for any extension. An extension negotiated in a hurry, months after closing, is expensive.
Licences
Many software licences held by the parent cannot be used to provide services to a company outside the group, even temporarily. Check with the vendors before relying on a TSA for systems that run on group licences.
IT separation
There are three broad ways to separate the technology:
| Approach | How it works | Trade-off |
|---|---|---|
| Clone and go | Copy the parent's systems and configuration, separate the data, and run the copy on the new company's infrastructure. | Fastest route to standalone; inherits the parent's complexity and licensing questions. |
| Lift into the buyer | Move the business onto the buyer's (or a platform company's) existing systems. | Works when the buyer has a suitable platform; migration and data mapping are the critical path. |
| Greenfield | Build a new, simpler stack sized for the standalone business. | Lower long-term cost; longest timeline, so more TSA months. |
Whatever the approach, two questions decide the timeline: how the data will be separated (which records belong to the business, how shared customer and supplier data is split, and what privacy rules apply to the transfer), and when the business can stop relying on the parent's identity and network services.
Day 1 versus end state
On Day 1, a carve-out typically runs on a mix of standalone services and TSAs. The end state, when every TSA has been exited, may be a year or more away. Plan both explicitly:
- Day 1: legal entities, bank accounts, payroll, and every service either standalone or covered by a TSA with a named contact. See Day 1 readiness.
- Interim: the migration programme, sequenced so the longest-running TSA services (usually IT and ERP) start first.
- End state: standalone operations at a known run-rate cost, which is the number the deal model should have assumed.
Diligence questions for a carve-out buyer
- Which shared systems, contracts and services does the business use today, and which will the seller provide under a TSA?
- Which customer and supplier contracts are held by other group entities, and do they need consent to transfer?
- Which software licences are group agreements that cannot be extended to the new company?
- How is the business's data separated from the rest of the group's, and who will do it?
- What are the standalone run-rate costs for IT, finance and HR, compared with the group allocations in the carve-out financials?
- Which people move with the business, and which critical know-how stays with the parent?
- What one-time separation budget, and how many months of TSAs, does the plan assume?
The seller's side: preparing a carve-out
Sellers who prepare well get better prices and fewer disputes. Preparation usually means:
- Carve-out financials that show the business as it will run, with the basis for cost allocations explained.
- A separation blueprint: which systems, contracts, people and data go with the business, and how.
- A TSA offer: which services the seller is willing to provide, for how long and at what price.
- A plan for stranded costs in the parent, so the seller is not tempted to recover them through the TSA price.
Building the standalone cost model
The carve-out financials show what the group charged the business, not what it will cost to run on its own. A buyer's standalone model rebuilds each function from the bottom up: the people needed, the systems and their licences, outsourced services, insurance, audit and the leadership roles the group used to provide. The gap between the allocation and the standalone cost is a dis-synergy that belongs in the valuation.
People and HR
Decide early who transfers with the business: the people who work in it full-time, and the shared-service staff whose knowledge it cannot do without. In asset sales, employment may transfer automatically under local law (in the EU, rules implementing the Acquired Rights Directive; in the UK, TUPE), with consultation obligations. Pensions and benefits that were provided through group plans need replacements ready for Day 1.
Legal entities and contracts
The carved-out business needs legal entities that can hold contracts, employ people and open bank accounts. Shared contracts (with suppliers and customers who serve several parts of the group) must be split, duplicated or assigned, often with counterparty consent. Purchase agreements commonly include a wrong-pockets clause, so that any asset, contract or payment that ends up with the wrong party after closing is transferred to the right one.
Common pitfalls
- Taking the carve-out financials' cost allocations as the standalone cost base.
- TSA schedules built from a quick list rather than a full service inventory.
- No exit plan for each TSA on the day it is signed.
- Relying on group software licences that cannot legally serve an outside company.
- Starting IT separation last, when it is the longest path.