Corporate Divestment and Carve-Out Valuation Methodology

The carve-out P&L

A UK carve-out valuation restates the subsidiary's reported numbers onto a standalone trading basis, adding back parent recharges, allocating shared overheads, and normalising transfer pricing before applying a sector EBITDA multiple. Allocate group recharges based on actual usage rather than historical accounting. Adjust for shared management time that will not transfer. Identify revenues that depend on group relationships and may not survive the sale. Identify costs that the standalone business will incur for the first time: standalone IT, finance function, HR, premises.

A credible carve-out P&L typically differs from the historical management accounts by 5 to 20% of EBITDA. Sellers who present optimistic carve-out figures find buyers chip the price during due diligence. Sellers who present realistic carve-out figures preserve credibility and price.

Allocation of assets and liabilities

Identify and allocate fixed assets, working capital, IP, licences, customer contracts, supplier contracts, employees (TUPE), and any contingent liabilities. Some items transfer cleanly; others need negotiation. The transaction structure (asset purchase, share purchase, hive-down then sale) affects what transfers and at what tax cost.

Standalone capability and management

Buyers want to know the subsidiary can operate independently. Where group functions (finance, HR, IT, procurement, legal) currently serve the subsidiary, the carve-out plan must identify how those functions will be replicated post-completion: internal hires, outsourced services, transitional service agreements with the seller, or buyer integration.

The management team transferring with the deal matters. If the divisional MD is also a group officer, the buyer needs comfort that the MD will commit to the standalone business. Without that clarity, the buyer discounts the price.

Synergies in versus synergies out

Group synergies that disappear on completion (procurement leverage, shared overhead, internal customer or supplier relationships) reduce standalone EBITDA. Conversely, the buyer may bring its own synergies (additional procurement leverage, cross-sell to its own customer base, integration into its own infrastructure). The seller's valuation should reflect standalone EBITDA; the buyer's offer may reflect its post-synergy view, which is typically higher.

Negotiating who pays for synergy is the central commercial dynamic. The buyer wants to pay for standalone capability and keep the synergy upside. The seller wants the offer to reflect the synergy the buyer will capture. The outcome usually lands somewhere in between.

Transitional service agreements

Most carve-outs involve a TSA: the seller continues to provide certain services (typically IT, finance, payroll) to the buyer for a defined period post-completion, usually 6 to 18 months. The TSA pricing, scope, and exit mechanics need careful negotiation. Generous TSAs lift the price; tight TSAs leave the buyer with integration risk that they price in.

Tax structuring

Carve-out tax structuring is bespoke. Substantial Shareholding Exemption may exempt the seller from corporation tax on the disposal of a qualifying subsidiary. Stamp duty land tax may apply on property transfers. VAT treatment depends on whether the transfer qualifies as a transfer of going concern. Engage tax advisers early; structures that work well at year zero may have unintended consequences in later years.