Equity Carve-Out in Simple Language

An equity carve-out happens when a big company sells a part of one of its businesses to the public through the stock market. This helps the company raise money while still keeping control of that business.

Real-Life Examples

Global Example: Agilent & Keysight Technologies (2014)

• Agilent Technologies was a big company working in different areas, like healthcare and electronics.
• One part of its business—electronic testing equipment—was different from the rest. So, Agilent decided to separate it into a new company called Keysight Technologies and sell some of its shares to the public.
• Keysight became independent and focused only on electronics, while Agilent focused on healthcare and life sciences.

Indian Example: ICICI Bank & ICICI Prudential Life Insurance (2016)

• ICICI Bank is one of India’s biggest private banks. It also owned ICICI Prudential Life Insurance, which sells life insurance.
• Since the insurance business was growing fast, ICICI Bank decided to list it on the stock market. This allowed investors to buy shares of ICICI Prudential Life Insurance directly.
• The IPO raised a lot of money, and over time, ICICI Bank reduced its stake in the insurance company.

Benefits of Equity Carve-Out

? Raises Money – The parent company gets funds by selling shares of the subsidiary.

? Better Focus – The main company and the new business can focus on their specific industries.

? Growth for the Carved-Out Business – The new company gets its own investors, leadership, and brand identity.

? Investors Get More Choices – Investors can choose to invest in just the new company instead of the whole parent company.

Drawbacks of Equity Carve-Out

? Less Control Over Time – If the parent company sells more shares in the future, it might lose control over the subsidiary.

? High Costs – Setting up a new public company requires legal work, regulatory approvals, and IPO costs.

? Market Risks – The new company has to prove itself to investors and might struggle if it doesn’t perform well.

? Possible Conflicts – The parent company and the new business might compete for resources or customers.