Lincoln International offers a perspective on corporate carve out trends.

Risk and Regulatory Pressures: In response to existing and evolving regulations, carve outs can help reduce risk by separating the parent company from a business segment, presenting a compliance burden.

Additionally, ESG risk and reporting have taken on greater importance in strategic planning and in dealmaking, as seen in 2022 with the energy transition catalyzing substantial carve out activity.

Influence of Shareholders: Intensifying shareholder and activist pressures have added new considerations for boards and management, which can prompt the decision to carve out a specific division to accommodate these stakeholders.

Lincoln Perspective

With a renewed focus on core business operations and the need to improve environmental credentials, industrials players and big service organizations are seeing the most opportunity for carve outs in 2023.

Opportunities for carve out transactions are plentiful and increasingly attractive investments for PE dollars, from improving green credentials by spinning off carbon-heavy assets to monetizing a non-core element of the business.

Corporates should consider carve outs as a way to get leaner during times of economic uncertainty while maximizing cash and improving agility for when market activity returns.

While carve outs are attractive within the present economic landscape, some factors make these processes complex, like management fit, close scrutiny on financials post-split, etc.

The value of pre-transaction planning and the need for a strong advisory partner cannot be overstated. The timing and process of a carve out should be customized to meet the parent company’s objectives.

Lincoln International’s positioning in the market, deep industry and advisory expertise and experience with complex carve-out transactions present a strong partner for these processes.