Over the past several years, private equity funds have shown growing interest in carve-out transactions. Long considered complex and risky, these deals are now at the core of many investment strategies, particularly in a context of heightened competition for traditional buyout assets. Understanding the reasons behind this shift helps to better grasp the evolution of private equity and the new opportunities it offers to both investors and professionals in the sector.

Read more: Should You Start Your Career in a Big Four Firm Before Moving into Finance?

Carve-outs: transactions long seen as marginal

A carve-out consists of separating a business unit, subsidiary, or division from a larger group in order to sell it to a new owner. Historically, these transactions were perceived as technically complex due to the interconnection of functions, IT systems, and operational processes within the selling group.

Private equity funds therefore tended to favor standalone companies that were already structured, easier to analyze and acquire. Carve-outs suffered from a negative image, often associated with high operational risk and limited financial visibility.

However, this perception has gradually changed as private equity players developed specific expertise and as the market became more competitive.

A market environment favorable to carve-outs

The growing appeal of carve-outs can first be explained by the macroeconomic and competitive environment. The proliferation of funds, the abundance of capital to deploy, and the scarcity of high-quality assets have led to upward pressure on valuations.

In this context, carve-outs appear as a less crowded source of opportunities. Processes are often longer, more technical, and therefore less accessible to generalist investors. This complexity acts as a barrier to entry, allowing the best-prepared funds to negotiate more attractive terms.

In addition, many industrial groups are seeking to refocus on their core businesses, notably to improve profitability, reduce leverage, or meet regulatory requirements. Carve-outs have thus become a major strategic lever for these groups, generating a steady flow of transactions.

Higher value creation potential

One of the main attractions of carve-outs lies in their strong value creation potential. The divested businesses have often been neglected by their former parent company due to a lack of strategic priority or dedicated resources. Once separated, they can benefit from autonomous management, tailored governance, and clear objectives.

Private equity funds then act on several levers: structuring support functions, implementing reporting systems, optimizing costs, and defining a standalone growth strategy. Operational transformation lies at the heart of the investment thesis in carve-outs.

Moreover, acquisition multiples are often lower than those observed for comparable already-independent companies, offering a more attractive entry point and significant medium-term revaluation potential.

The rise of specialized teams

Faced with the complexity of carve-outs, funds have progressively structured dedicated teams capable of managing these transactions end to end. These teams combine financial, operational, legal, and IT expertise, all of which are essential to ensure an effective separation.

The success of a carve-out largely depends on the post-acquisition phase, particularly the implementation of transitional service agreements and the build-out of a standalone organization. The most experienced funds now rely on proven methodologies, significantly reducing execution risk.

This professionalization has helped change the perception of carve-outs, which are now seen as complex but highly manageable transactions.

A preferred arena for active investors

Carve-outs provide private equity funds with a particularly favorable environment to exercise their role as active shareholders. Unlike some already-optimized companies, carve-out businesses often present substantial room for improvement.

Funds can intervene from the very first months to redesign the organization, recruit a new management team, or adjust the commercial strategy. This direct involvement strengthens investors’ ability to influence the company’s trajectory and generate tangible value creation.

In an environment where differentiation is key, the ability to execute carve-outs successfully becomes a major competitive advantage for funds.

Enhanced career opportunities for young professionals

The rise of carve-outs also has implications for recruitment and training. These transactions require profiles capable of combining financial analysis, operational understanding, and project management. For young professionals, working on a carve-out represents a particularly formative experience.

Analysts and associates are exposed to the entire investment cycle, from transaction structuring to post-acquisition organizational setup. This cross-functional perspective is highly valued in the market and enables rapid skill development.

Carve-outs therefore help reinforce the attractiveness of private equity for talents seeking to evolve in demanding and hands-on environments.

Conclusion

While carve-outs were once seen as marginal and risky transactions, they are now central to the strategies of many private equity funds. Supported by a favorable market environment, strong value creation potential, and increasingly professionalized teams, they represent a credible — and often attractive — alternative to traditional transactions.

For funds, carve-outs offer an opportunity to differentiate in a saturated market. For finance professionals, they provide a unique learning ground at the intersection of strategy, operations, and investment.