A practical guide to carve-out due diligence — how PE and corporate buyers test whether a division sold out of a parent can run alone: true P&L, shared services, systems cutover, people and contracts that may not transfer, and the TSA bridge that fills the gap.
Buying a whole company is hard. Buying a slice of a company is harder in a different way. Revenue may look clean in the CIM while IT, treasury, HRIS, brand, and customer contracts still live on the parent. The model that underwrites “standalone EBITDA” without a separation plan is fiction.
Carve-out due diligence answers one question: after the parent stops subsidizing this unit, what remains, what must be rebuilt, and what does that cost in time, cash, and customer risk?
| Pillar | Core question | Typical evidence |
|---|---|---|
| 1. Standalone economics | What is true run-rate without parent? | Segment P&L, allocations, stranded cost map, WC bridge |
| 2. Shared services & TSA | What does the seller keep providing? | Service matrix, SLAs, pricing, exit ramps, Day-1 list |
| 3. Systems & data | Can we cut over without outage? | ERP/CRM stack, data ownership, access, cyber boundary |
| 4. Contracts & legal entity | What actually transfers? | Assignment consents, licenses, IP, entity step plan |
| 5. People & org | Who runs it Day 1? | Matrix roles, dual employment, retention, union/works council |
| 6. Ops & go-forward | Can customers feel nothing? | Sites, supply, brand transition, 100-day separation plan |
| Stage | Carve-out focus | Output |
|---|---|---|
| Pre-LOI / screening | Segment disclosure, shared-brand risk, obvious non-assignables | Go / no-go + structure signal |
| LOI / exclusivity | Data-room request list; draft TSA principles; entity path | Workplan + red-flag list |
| Confirmatory | Standalone model, systems map, people map, contract transfers | Price chips + TSA term sheet |
| SPA / close | TSA schedules, transitional brand, indemnities, WC peg | Protective structure |
| Day 1–100+ | Cutover milestones, dual-run, exit from TSA | Separation program ownership |
Start with revenue quality that is truly attributable to the unit (customers, SKUs, geographies). Then rebuild cost:
Push for a bridge from management EBITDA to buyer standalone EBITDA with every allocation method named. If the bridge is a black box, the model is not diligence-ready.
A well-scoped TSA buys time. A vague TSA buys dependency. Diligence should produce a matrix:
| Service | Owner today | TSA months | Exit plan | Cost risk |
|---|---|---|---|---|
| ERP / finance close | Parent shared | 6–18 | New ERP or hosted | High |
| Payroll / HRIS | Parent | 3–12 | Buyer payroll | Med |
| IT helpdesk / network | Parent | 6–12 | MSP + identity cutover | High |
| Brand / domain / email | Parent brand | 3–24 | Rebrand program | Med |
| Facilities / plant services | Shared campus | Site-specific | Lease split / move | High |
Price the TSA honestly. Below-market TSA fees can look like a gift and still strand you when the seller wants you off the system faster than your cutover plan allows.
Specialist finance, IT separation, and legal entity work is expensive — and still misses public red flags you can screen for $49 before you open the data room.
Ask which systems of record the unit uses for order-to-cash, procure-to-pay, inventory, CRM, and product data. Map:
IT carve-out is where timelines and EBITDA models break. Treat it as a critical path equal to legal close, not a post-signing project.
Not every contract walks out the door with the unit. Diligence must flag:
Pair this workstream with legal due diligence, regulatory, and IP diligence rather than treating separation as ops-only.
Org charts lie when the business runs on parent matrix talent. Identify dual-hat executives, shared sales, shared plant leadership, and contractors who bill the parent. Map retention packages, non-competes, and works-council / union consultation timelines in jurisdictions that require them before a transfer of undertaking.
Cross-check with people due diligence and management due diligence — a carve-out with no transferable #1 and #2 is a different deal than the CIM photo suggests.
| Severity | Signal | Why it matters |
|---|---|---|
| Deal-killer | Standalone EBITDA collapses after honest shared-cost load | Price and leverage thesis break |
| Deal-killer | Top customers cannot assign; re-paper risk is high | Revenue may not transfer |
| High | Single shared ERP with no cutover plan or cost | Close risk + TSA dependency |
| High | Key leaders stay with parent; bench is thin | Day-1 execution failure |
| High | Stranded campus / plant services with no alternative site | Ops continuity risk |
| Watch | Below-market TSA fees with short notice-to-exit | Hidden cost cliff |
| Watch | Brand license short and non-renewable | Go-to-market rebuild |
| Approach | Typical cost | Timeline | Best for |
|---|---|---|---|
| Full multi-workstream carve-out DD | $50K–$500K+ | Weeks–months | Confirmatory on live divestiture |
| IT / systems separation program | $75K–$1M+ | Months | Complex shared ERP/data estates |
| Public-info first-pass pack | $49 ($39.20 w/ code) | ~minutes | Pre-LOI triage & shortlist screen |
Use the cheap screen to decide whether a division is even worth a separation budget. Use specialists when the LOI is live and the data room is open.
Interactive tracker for deal teams. Mark items as you work the data room.
A public-information diligence pack will not design your TSA or cut over your ERP. It will surface parent segment signals, competitive and legal headlines, facility footprints, and obvious brand / concentration risks so you do not spend a specialist budget on a non-starter. Use it pre-LOI; use specialists post-LOI.
The buy-side review of a business unit sold out of a larger parent — standalone economics, shared services, systems, contracts, people, and Day-1 readiness.
Many capabilities still live on the parent. You must reconstruct what transfers, what you rebuild, and what a TSA covers.
Parent costs that remain after the unit leaves but are underutilized. They distort both seller and buyer economics if ignored.
A Transition Services Agreement: post-close services from the seller for a defined fee, scope, and period while you separate.
Standalone EBITDA that does not hold, non-assignable customers, un-cuttable systems, and non-transferable leadership.
Screens in days; full multi-workstream programs in weeks to months depending on IT and legal complexity.
Standalone bridge, transferability of contracts, people who run the unit, systems map, draft TSA matrix.
Enough for triage and shortlist. Not enough for confirmatory separation design or legal opinions.
Order a structured public-info PDF on the parent or target name — or shortlist three names with the 3-Pack. Screening research, not legal advice.