Divisional buyout

Short description: Concept in finance

A divisional buyout or carveout, in finance, is a transaction in which a corporate division, business unit, or subsidiary is acquired using the same financial structuring as a leveraged buyout.

Typically, in these transactions, the financial sponsor will turn the acquired business into a standalone company, necessitating the creation of certain functions that were formerly provided by the parent company.

## Divisional reverse leveraged buyout (D-RLBO)

A D-RLBO is a leveraged buyout of a division or subsidiary that subsequently comes to trade on the public markets. From the point of view of a divesting firm, the D-RLBO permits the sale of a subsidiary to its management and/or private investors who subsequently restructure its assets and capital structure to enhance overall firm value.

Avon Products Inc. provides an example. Avon divested specialty jeweler Tiffany & Co. to private equity investors who subsequently accomplished an initial public offering (IPO).

## References

* Hite, G., & Vetsuypens, M. R. 1989. Management buyouts of divisions and shareholder wealth. The Journal of Finance, 44: 953 – 970.
* Singh, H. 1990. Management buyout: Distinguishing characteristics and operating changes priorto public offering. Strategic Management Journal, 11: 111–129.

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* Venture
* Mezzanine
* Growth
* Secondaries
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* Early history of private equity
* Private equity in the 1980s
* Private equity in the 1990s
* Private equity in the 2000s

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Buyout|

* Financial sponsor
* Management buyout
* Divisional buyout
* Buy–sell agreement
* Leveraged recapitalization
* Dividend recapitalization

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Venture|

* Angel investor
* Business incubator
* Post-money valuation
* Pre-money valuation
* Seed money
* Startup company
* Venture capital financing
* Venture debt
* Venture round

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* Private equity firms and funds
* Limited partnership
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* Carried interest
* Management fee
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* Private investment in public equity (PIPE)
* Pledge fund

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* Corporations
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* High-net-worth individuals
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* AUM
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* IPO
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* PME
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* Private equity and venture capital investors
* Private equity firms
* Venture capital firms
* Angel investors
* Portfolio companies

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