TLDR:
A carveout in business refers to either: (1) a provision in a contract excluding certain items from coverage, or (2) a corporate transaction where a parent company sells a minority stake in a subsidiary through an IPO.
Types of Carveouts in M&A
In M&A, the most common carveout is the business carveout, where a parent company separates and sells a distinct business division or subsidiary. This can take the form of a stock carveout (IPO of a subsidiary), a direct sale to a strategic acquirer, or a spin-off to existing shareholders. Carveouts allow corporations to unlock value hidden within conglomerates, focus management attention on core businesses, and monetize undervalued divisions without selling the entire enterprise.
Carveout vs. Spin-Off
While both transactions separate business units, they differ in key ways. In a carveout, the parent company receives proceeds from the sale or IPO, retaining a partial or full stake. In a spin-off, existing shareholders receive shares in the new entity proportionally, and no cash changes hands at the parent level.