Divestiture: How a Company Sells a Business Unit
A divestiture is the sale of a business unit. Private equity firms were 37% of buyers in US divestitures in Q1 2026. Stand-alone EBITDA, TSA, buyer types.
In US divestitures in Q1 2026, domestic strategic acquirers were 50% of buyers and private equity firms 37%, so the buyer list needs both types.
In M&A practice it is the separation of a unit's operations and numbers for sale. In equity markets it is a minority offering where the parent keeps control.
Parent overhead allocated to the unit ends at closing and the unit's own costs replace it, so the buyer prices the stand-alone figure.
A transition services agreement keeps the parent's payroll, billing and IT serving the unit until the new owner runs its own, on terms set in the offer.
A spin-off pays the parent no sale price, an equity carve-out sells a minority stake and keeping the unit pays nothing. A parent that needs cash looks at a sale.
A divestiture is the sale of a business unit, subsidiary or product line by its parent company. The parent sells the unit to a strategic buyer or a private equity firm and hands over the people, contracts and systems the unit runs on, usually under a transition services agreement.
In US divestitures in Q1 2026, domestic strategic acquirers were 50% of the buyers and private equity firms 37%, according to Deloitte Investment Banking's quarterly count.
| Whole | Part | Share |
|---|---|---|
| Q1 2026 | Domestic strategic, 50% | 50% |
| Q1 2026 | Private equity | 37% |
| Q1 2026 | Foreign strategic, 13% | 13% |
What is a divestiture, and how does it differ from a spin-off or carve-out?
Four routes move a unit out of a parent company, and each pays the parent differently. Corporate divestiture is sometimes used as the label for all four. In deal practice it mostly means the first, a sale to a buyer, and that's the route a sell-side M&A advisory team runs.
4 columns. Drag the table sideways; the first column stays put.
Route | What the parent receives | Who holds the unit afterwards | What the unit needs first |
|---|---|---|---|
Sale | Cash or a deferred price from the buyer | The buyer | Carve-out financials and a buyer |
Spin-off | No sale price. Any cash comes from a retained stake or a pre-spin payment | The parent's shareholders | In the US, five years of active business for a tax-free spin |
Equity carve-out | Depends on the offering: new shares can raise cash for the unit, existing shares for the parent | Outside investors hold a minority and the parent keeps control | Carve-out financial statements for the listing |
Split-off | Parent shares back from the shareholders who exchange them | The shareholders who exchanged | Shareholders who accept the exchange |
Carve-out carries two meanings, so an engagement letter or term sheet should say which one it uses. In M&A practice it's the work of separating a unit's operations and numbers so that it can be sold. In equity markets it's the carve-out IPO that Harvard's corporate governance forum described in 2017: a minority interest offered to outside investors, with the parent keeping control.
In the US, a spin-off reaches shareholders free of tax only if the business has been actively conducted throughout the five years before the distribution and the transaction isn't used principally as a device to distribute earnings (26 U.S.C. 355).
Why do companies divest a business unit?
Unit sales are a large share of deal activity: in the US, divestiture transactions made up 25% of total M&A activity in Q1 2026, by Deloitte's count. A CFO can test a unit on three points before deciding to sell:
Fit with the core. A unit outside the parent's main business takes management time and capital that the core could use.
Value under another owner. A buyer with the same customers, or a sponsor with a plan for the unit, can value it above the parent's own figure.
Use of the cash. The proceeds have a defined use, such as retiring debt or funding the core.
A fourth case belongs to private equity-backed companies: a non-core unit sold ahead of the sponsor's own exit, so that the company reaches that exit as one business.
Owners of both kinds are active: in KPMG's 2026 outlook, 57% of corporates and 71% of private equity firms were open to or actively pursuing portfolio rationalisation.
The use of the cash sets the floor price. A parent that has named the use of the cash, such as a debt repayment date, can fix a minimum and a timetable from it.
How do carve-out financials work, and what are stand-alone costs?
A unit that sat inside a parent has no books of its own that a buyer can price directly. Its income statement carries allocations of parent overhead, and stand-alone costs are what the unit would pay if it ran as an independent company. The gap between the two is the number a corporate divestiture turns on.
Forvis Mazars reported in 2026 that there often isn't a full financial statement for a carve-out entity, and a buyer can undercount corporate overhead, unallocated costs or critical parent-run functions. A cost the buyer finds in diligence comes off the price.
The SEC staff's guidance for filed statements (SAB Topic 1.B) says a subsidiary's historical income statements should reflect all of its costs of doing business. The same guidance describes a footnote giving the cost that would have been incurred if the subsidiary had operated as an unaffiliated entity. It binds no private sale, but a buyer asks the same question.
In BDO's 2019 guidance, transaction prices are typically based on the business's EBITDA, and a stand-alone operating model helps mitigate stranded costs. Four groups of cost sit behind the bridge:
Costs that go with the unit: the people, systems and contracts that transfer.
Costs that stay behind: parent overhead the unit absorbed. Once the unit leaves they become stranded costs, which the parent has to cut or carry.
Costs the unit must now buy: finance, HR, IT, legal, insurance and audit.
Lost purchasing scale: supplier terms that the parent's volume earned.
| Step | Change | Running total |
|---|---|---|
| Unit EBITDA as reported, with parent allocations | $10.0M | |
| Parent overhead allocated to the unit, ends at closing | +$1.8M | $11.8M |
| Own finance, HR, IT, legal, insurance and audit | −$2.6M | $9.2M |
| Lost purchasing scale | −$0.7M | $8.5M |
| Stand-alone EBITDA | $8.5M |
The company's finance team and its auditors produce these numbers. spectup builds them into the sale materials and doesn't perform financial diligence.
What does a transition services agreement cover, and what sets its term?
A transition services agreement (TSA) keeps the parent's people and systems serving the unit after the sale closes, until the new owner has built or bought its own. Mayer Brown's October 2024 guide describes it as the arrangement under which the seller provides critical services to the divested business during a transitional period after the closing. Scope, price and end date are open points in the offer.
Deal teams tend to miss the shared services. Forvis Mazars's 2026 review lists payroll, billing and ERP access among them. A service left off the schedule is a cost that surfaces after closing.
Common pricing options are at-cost, cost-plus and fixed price, and some TSAs carry no charge. Where the seller measures its serving units on profit and loss, Mayer Brown notes, at-cost and no-charge pricing may create a disincentive for those units to deliver the services. That makes a free TSA a delivery risk the buyer should price into its offer.
The term is the other lever. A buyer typically wants rights to extend, and the seller wants out of the obligation quickly. Limited extension rights with defined notice periods and possibly higher prices can bridge the difference.
In 2019, BDO advised sellers to price a TSA at cost-plus, add an escalating price for extensions and cap the term at 12 months.
| Step | Leads to |
|---|---|
| Parent company (IT, payroll, billing, finance close) | TSA [services] |
| TSA (Scope, service levels, price basis) | Unit under its new owner |
| Unit under its new owner (Receives the services) | Migration and exit [migrate]; Extension? |
| Extension? (Notice period, higher price) | Migration and exit |
| Migration and exit (Owner runs its own services) | end |
The scope list and the price basis belong in the term sheet or letter of intent, before exclusivity starts, because a buyer that finds a missing service afterwards has a reason to reopen the divestiture price. The company and its counsel negotiate the schedules with the buyer. spectup prepares the client and counsel for that negotiation.
Who buys a business unit: strategic acquirers or private equity?
Two kinds of buyer purchase these units, and they pay for different things. By Deloitte's count, private equity rose from 35% to 37% of the buyers in US divestitures between Q4 2025 and Q1 2026.
Strategic acquirers and sponsors differ on 5 points a seller has to plan for.
3 columns. Drag the table sideways; the first column stays put.
Point | Strategic acquirer | Private equity buyer |
|---|---|---|
Pays for | The unit's earnings plus the costs it removes by combining the unit with its own business | The unit's stand-alone EBITDA and a plan to grow it |
Needs from the seller | A clear perimeter: which employees, contracts and assets transfer | A clean perimeter and stand-alone numbers it can build a financing case on |
Stance on a TSA | May need less where it already runs payroll, IT and finance | Usually needs one for each function the unit lacks |
Price shape | Cash, with the value of combining the two businesses supporting the bid | Cash, and in some offers a seller rollover or a deferred price |
What the seller checks | What a competitor learns about customers and prices, and any competition review | Whether the financing holds through to closing |
In the illustrative bridge above, a sponsor's bid starts from the $8.5M, and a strategic bidder's starts higher by the costs it removes.
What happens in each phase of a divestiture, and what sets the timing?
Preparation comes first: the perimeter, the stand-alone numbers and the sale document are finished before the first buyer hears about the unit. The buyer process follows, and its pace depends on how many parties turn into offers and how clean diligence is. The separation work between signing and closing comes last.
The divestiture process runs in 7 phases, and the carve-out work overlaps the sale:
Route and perimeter. The parent picks the route and fixes which employees, contracts and assets transfer.
Stand-alone numbers and materials. The bridge from allocated to stand-alone EBITDA, and the documents built on it.
Buyer process. Teaser, NDA, memorandum and bids, all due on one date.
Offer and exclusivity. The chosen bidder's terms, set out in a letter of intent that carries the TSA scope.
Confirmatory diligence and signing. The buyer checks what its offer rested on.
Separation between signing and closing. Systems, people and contracts are split, and the TSA schedules are finished.
TSA exit. The unit's new owner takes over each service.
The auction mechanics of phases 3 to 5 are in the sell-side process.
The audit calendar is a fixed date to plan around. EY-Parthenon's 2021 road map for carve-out sales warns that audit updates take time and can severely impact deal timing, so the calendar is worth fixing in phase 2.
When does a sale beat a spin-off, a carve-out IPO or keeping the unit?
A sale wins when the parent needs cash and a buyer values the unit above the parent's own figure. 3 tests decide it: whether the parent needs the cash, whether the unit can stand alone at listed-company scale, and whether any buyer pays more than the parent's own value.
A sale can create a taxable gain in the US. The divestiture vs spin-off decision is also a tax question in the US: a spin-off pays the parent no sale price and needs the 5 years of active business history described above, so a unit with a shorter record usually has no tax-free route there.
An equity carve-out offers only a minority stake and carries the cost of a listing. Keeping the unit leaves the parent with the drag on management time and capital that made it a candidate.
| Item | Cash to the parent at closing (0 to 100) | Parent's remaining ownership (0 to 100) | Note |
|---|---|---|---|
| Sale | 88 | 6 | |
| Spin-off | 6 | 12 | |
| Equity carve-out | 5 | 70 | |
| Keep the unit | 4 | 95 |
In the divestiture vs spin-off choice, the US tax test applies to the spin-off: it is tax-free only if the business has been actively conducted for five years.
Routes can run side by side. One live spectup transaction, for a healthcare services company in Europe, runs a sale and a capital raise in parallel so that the shareholders can compare the two prices, and its details stay under NDA until the process completes.
How spectup runs the sale of a business unit
From the desk. The acquirer list comes first and every bidder works to one timetable. The record behind it is $760M+ advised, raised or placed.
A healthcare business with no process running, sold in 2026 to a strategic acquirer in the United States: a $10M transaction. spectup compiled the acquirer list, approached a field of strategic buyers against a single timetable and carried the sale through to signing. The seller appointed spectup and paid the fee.
spectup is engaged by the seller of the unit and acts for no one else. It takes on carve-outs from an enterprise value of EUR 10M.
The engagement fixes what is being sold, the range the unit goes to market at and the floor the parent will not sell below, before any buyer is contacted.
The parent's finance team and its auditors produce the stand-alone numbers, such as the $8.5M in the bridge above, and spectup builds them into the numbers pack and the equity story. Contracts that don't assign on a change of control are among the points to close off before a buyer's diligence finds them.
The acquirer list is built for the transaction across strategic acquirers and funds, and the client approves every name on it. Nobody is contacted before the client has signed the list off. Disclosure then comes in stages: a teaser without the company's name, a signed NDA before the company is named, and the confidential information memorandum with the stand-alone numbers in it.
Every bidder works to one deadline, and spectup ranks the bids by price, by how the price is paid and by the conditions attached. A sale clears just above the second-highest offer, so keeping the underbidder live to the end protects the price. Bidders who stay in receive access to the data room, which spectup runs alongside the diligence timetable.
Four parties split the work:
2 columns. Drag the table sideways; the first column stays put.
Party | What it does in the sale |
|---|---|
The parent's finance team and auditors | Fix the perimeter, produce the stand-alone numbers and sign off the stand-alone P&L |
The company and its counsel | Negotiate the purchase agreement and the TSA with the buyer |
The buyer | Checks the numbers in diligence, bids to the deadline and takes the services under the TSA until it runs its own |
spectup | Sets the range and the floor with the client, builds the sale materials and the approved acquirer list, runs the divestiture process to one timetable and gets the client and its counsel ready for the negotiation. It performs no legal or financial diligence |
spectup's fee is a retainer plus a success fee. The success fee falls due once the sale closes and the proceeds reach the client. If the unit doesn't sell, the client has paid the retainer and no transaction fee is due.
What to settle before a business unit goes to market
Before a business divestiture goes to buyers, 6 points should be on paper:
The perimeter: which employees, contracts and assets transfer with the unit.
A stand-alone P&L, signed off by the finance team and the auditors.
The services list for the TSA, each service with a proposed price basis and an end date.
A plan for the stranded costs.
The buyer types in order of preference, strategic acquirers and sponsors.
A fallback route if no buyer reaches the number.
If your list has gaps, the next step is a call with the sell-side team of spectup's M&A advisory practice, who can say which gap moves the price first.
Three conclusions
A buyer applies its multiple to what the unit earns without the parent. Overhead allocated by the parent ends at closing and the unit's own costs replace it, so that bridge comes before any buyer is approached.
A service missing from the transition schedule is a cost the buyer finds after closing. Scope and price basis belong in the term sheet, before exclusivity starts, while more than one bidder is still live.
Strategic acquirers count the costs they remove by combining the unit with their own business, while sponsors price the unit on stand-alone EBITDA and a plan to grow it. The buyer list should hold both.
Divestiture: questions readers ask
8 questions on M&A and secondary markets, answered by Edwin Mik, Partner & Head of IR.
01What does divestiture mean?
It's the sale of a business unit, subsidiary or product line by its parent company. The term also covers a spin-off, where the parent's shareholders receive the unit, but in deal practice it mostly means a sale to a buyer.
02What is the difference between a divestiture and a carve-out?
In M&A practice a carve-out is the work of separating a unit's operations and financials so that it can be sold, and the sale follows. In equity markets a carve-out is an offering of a minority interest in the unit to outside investors while the parent keeps control.
03What is the difference between divestment and divestiture?
None in what they describe: both words name the disposal of a business or an asset.
04What is an equity carve-out?
An equity carve-out is a carve-out IPO, in which the parent offers a minority interest in the unit to outside investors and keeps control. Because it offers only a minority interest, it does not sell the whole unit. Who receives the proceeds depends on whether the shares are new or existing, and the unit needs carve-out financial statements for the offering.
05Is divestiture good or bad for a company?
Unit sales are routine: Deloitte counted US divestitures at 25% of total M&A activity in Q1 2026, and KPMG found 57% of corporates open to or pursuing portfolio rationalisation. A sale helps when the unit is non-core, a buyer values it above the parent's own figure and the cash has a defined use, such as retiring debt. It hurts when stranded costs stay with the parent or when the price assumes numbers the unit can't hold as a stand-alone business.
06What is a transition services agreement (TSA)?
A transition services agreement keeps the seller's people and systems serving the divested unit for a set period after closing, with services such as payroll, billing and ERP access. It defines each service, its service levels and its price, which is at cost, cost-plus or fixed. The buyer uses it until its own services run.
07What determines how long a divestiture takes?
The pace is set by the perimeter, the state of the stand-alone numbers and how many bidders turn into offers. Signing is followed by the separation work, and a transition services agreement can run on after closing. BDO's 2019 advice was to cap a transition services agreement at 12 months. Audit updates can also affect timing, as EY-Parthenon noted in 2021.
08When should a CFO hire a sell-side advisor to divest a business unit?
Bring in a sell-side M&A advisory firm once the board has chosen a sale as the route and before any buyer is contacted. The advisor builds the buyer list, prepares the sale materials from the finance team's stand-alone numbers and runs one timetable across bidders. spectup acts for the seller of the unit only, and its fee is a retainer plus a success fee due when the sale closes.
