Divisional buyout

Divisional buyout: 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 with the purpose of enhancing overall firm value.

Example: Avon Products Inc. 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.

v · d · eTopics on private equity and venture capital

Basic investment types
Buyout • Venture • Mezzanine • Growth • Secondaries • Equity co-investment

History
History of private equity and venture capital • Early history of private equity • Private equity in the 1980s • Private equity in the 1990s • Private equity in the 2000s

Terms and concepts

Buyout

Financial sponsor • Management buyout • Divisional buyout • Buy–sell agreement

Venture

Seed money • Startup company • Angel investor • Venture capital financing • Pre-money valuation • Post-money valuation • Venture round • Venture debt • Bootstrap funding

Structure

Private equity firms and funds • Limited partnership • Limited liability company • Carried interest • Management fee • Publicly traded private equity (Business Development Company, Venture capital trust) • Private investment in public equity (PIPE) • Pledge fund

Investors
Institutional investors • Pension funds • Insurance companies • Fund of funds • Endowments • Foundations • Investment banks • Merchant banks • Commercial banks • High-net-worth individuals • Family offices • Sovereign wealth funds

Related financial terms
Undercapitalization • Initial public offering (IPO) • M&A • Leverage • High-yield debt • Capital structure • Capital call • EBITDA • IRR • Envy ratio

Private equity and venture capital investors • Private equity firms • Venture capital firms • Angel investors • Portfolio companies

Categories:
Private equity stubs
Corporate finance
Private equity

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Academic Dictionaries and Encyclopedias

Divisional buyout

Divisional reverse leveraged buyout (D-RLBO)

References

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Academic Dictionaries and Encyclopedias

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Divisional buyout

Divisional reverse leveraged buyout (D-RLBO)

References

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