Carve-out deal volume hit a five-year high in H1 2025. Average returns tell a different story. Where the value is actually won or lost may surprise even experienced deal teams.
Feb 19, 2026, 12:00 AM
Written by:
Niko Ludwig
Table of Contents
Key Takeaways:
Returns compressed, execution decides winners. Top-quartile carve-outs still deliver 2.5x when separation is integrated.
Corporates divest by choice, not distress. Deal values tripled as boards prioritize portfolio focus and capital recycling.
Separation failures erode value quietly. TSA mismanagement and leadership gaps absorb capital earmarked for growth.
Manager selection outweighs deal type. Allocators need deal-level proof, not aggregate carve-out return claims.
More sponsors are pursuing carve-outs than at any point in the past five years. Average returns are the lowest they've been in over a decade. Both things are true at the same time.
Corporate carve-out deal volume climbed to 10.6% of U.S. buyouts in the first half of 2025, well above the five-year average. At the same time, average carve-out returns have been falling for over a decade. That tension tells you more about the current state of private equity than any fundraising headline.
Carve-outs no longer outperform by default. The Bain data on post-2012 returns makes that clear. What separates top-quartile outcomes from the rest appears to hinge, at least in part, on how early and how tightly sponsors connect the separation plan to the value creation thesis.
Before 2012, PE-backed carve-outs were a reliable formula. Sponsors acquired overlooked divisions at a discount, stripped out corporate overhead, and exited at multiples that rewarded the complexity. Average MOIC sat around 3.0x, compared to 1.8x for all buyout deals.
That outperformance has largely disappeared. Since 2012, the average carve-out has delivered roughly 1.5x MOIC, slightly below the buyout average. Top-quartile deals still reach 2.5x, but the middle of the distribution has hollowed out. Carved-out companies once improved revenue by 31% and margins by 29% during ownership. Post-2012, those figures have fallen to 17% and 2%.
What compressed the premium
Two forces converged:
First, more sponsors entered the carve-out market, bidding up acquisition multiples.
Second, corporates got smarter about running competitive auctions. The structural discount that once subsidized mediocre execution has been largely competed away.
Meanwhile, PE carve-out deal value reached $23.7 billion through early June 2025, up 22.5% year over year. More capital flowing into a deal type with thinner average returns suggests that the entry pricing advantage that once underwrote carve-out performance has narrowed.
Returns increasingly depend on how quickly sponsors can exit TSAs, build standalone infrastructure, and convert the separation itself into operating leverage. This compression means underwriting assumptions built on historical category outperformance no longer hold.
U.S. corporate divestiture volume dropped from 1,050 transactions in 2021 to 720 in 2025 (annualized), yet deal value rebounded to $300 billion from $125 billion the prior year. Fewer deals, substantially larger, and far more deliberate.
The drivers are structural:
Cost of capital pressure: Elevated rates make conglomerate discounts harder to justify. Boards that once tolerated sprawling portfolios now face direct pressure to demonstrate capital allocation focus.
Core operations refocusing: 70% of corporates surveyed cited refocusing on core operations as the primary divestiture rationale, with over 80% expecting more global divestitures in the coming year. AURELIUS is itself a carve-out specialist, so the data is directional rather than a neutral industry benchmark.
Activist campaigns: M&A objectives appeared in 35% of global activist campaigns in 2025, above the five-year average of 29%. In Europe, that figure reached 50%. Global campaign activity hit a record 297, a third consecutive record year.
Even without activist involvement, boards are reaching similar conclusions. 3M, Philips, Global Payments, and Atos are all actively reshaping their portfolios through major divestitures. None are distressed sales. Up to 39% of companies, and 46% of PE-backed companies, expect material divestitures in the coming year.
Strategically motivated sellers tend to run tighter processes and provide cleaner data rooms. They also tend to set firmer price expectations, as AlixPartners notes, sellers increasingly prioritize both portfolio focus and speed, but not at the expense of value.
Easy pickups at distressed pricing are increasingly rare, though selective discounts persist for deals with genuine operational complexity.
What sponsors see in complexity
KKR's 2024 acquisition of Omnissa from VMware illustrates the core carve-out thesis: a business with leading positions in multi-billion-dollar segments that had never received a dedicated sales team or channel strategy. Focused commercial investment would convert existing product strength into growth.
Selective pricing advantages persist. DuPont divested its mobility and materials division to Celanese in 2022 at around 10x EV/EBITDA against an industry norm of 12 to 14x. Complexity limits the buyer universe, and sellers often prioritize speed over maximizing price.
The upside can be material. From 2010 to 2024, well-executedhealthcare carve-outs delivered IRR roughly 20% above other buyouts, though with higher return variance. The premium reflects successful execution, not the category average, and proforma models should be stress-tested accordingly.
Where value is actually won or lost
What separates 2.5x top-quartile outcomes from the 1.5x average? Bain's analysis of 25 deals from 2013 to 2024 points to separation execution. Top performers integrated their value creation and separation plans from day one, treating organizational design, talent strategy, and operational buildout as direct expressions of the investment thesis rather than prerequisites for it.
TSA management as a leading indicator
Transition service agreements are often where carve-out value quietly erodes, not because the concept is unfamiliar, but because the pricing, service levels, and exit timelines are consistently underestimated. Practitioner accounts from E78 Partners point to three recurring failures:
Underestimated service costs built into TSA pricing
Unclear service levels that degrade operational performance
Unrealistic IT separation timelines that extend dependency and delay standalone capability
Talent compounds the challenge. Key leaders often stay with the seller. The buyer has to build or recruit a management team capable of running an independent business while simultaneously managing the separation itself. And because carved-out entities frequently lack standalone balance sheets, traditional lenders can be reluctant to finance them.
Private credit has stepped in with more flexible structures, but the financing complexity adds another layer of execution risk. TSA terms, IT separation timelines, and management continuity plans belong in diligence, not in post-close planning. Sponsors who leave these for post-close are underwriting the same execution failures that Bain's return data captures.
How allocators can evaluate carve-out managers
When a deal type no longer outperforms on average, the allocation decision shifts from category exposure to manager-specific execution capability. Manager selection now carries more weight than deal type selection.
Diligence that moves past the pitch
Carve-out "capability" is easier to claim than to verify, and aggregate track records can obscure a bimodal return distribution: a handful of strong outcomes alongside write-offs or flat deals. Granularity matters, specifically:
How quickly did past carve-outs reach full operational independence from the seller?
What was the margin trajectory in years one through three?
What were the actual costs of TSA exit versus what was underwritten at acquisition?
Did the GP build standalone infrastructure, or did they rely on extended TSAs that delayed value creation?
In tech sector divestitures from 2008 to 2024, companies executing carve-outs outperformed the S&P 1200 IT Index by 9% in total shareholder return two years after the transaction. The finding suggests sellers benefit from focus as well. But for the PE buyer, the value creation has to come from what they build post-separation, and that's where the track record needs to be specific.
What fundraising materials should reflect
For GPs positioning carve-out capability in fund presentations and LP communications, the data argues for specificity over narrative. Include deal-level evidence:
TSA exit timelines
Standalone cost structures
Margin trajectories in years one through three
Management team composition at acquisition versus exit.
Allocators who know the return data will scrutinize these details.
The bottom line
The pipeline of corporate divestitures keeps expanding. With 39% of companies planning material divestitures and $2.51 trillion in dry powder seeking deployment, the supply of complex assets coming to market is unlikely to slow.
What will separate the next cycle of carve-out returns from the last is how quickly the industry internalizes what the data already shows: standing up a company and creating value in it are the same project, not sequential phases. Sponsors who build that capability into their operating model, and allocators who know how to test for it during diligence, will capture the returns that the category average no longer delivers by default.
For fund managers preparing investor materials or positioning a carve-out track record ahead of a raise, deal-level evidence is now the baseline expectation.
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