Carve-out Financial Statements
Carve-out financial statements present a business unit to be separated from a group as if it had been a standalone company. They cover several years, allocate shared assets, liabilities and costs, and form the basis for valuation and price negotiation.
Why they exist at all
A carve-out sells a part of a company that has never kept its own books. There is no balance sheet, no profit and loss account, no history – the part was a division, a site, a product area inside something larger. But a buyer cannot value what has no numbers. Carve-out financial statements construct those numbers after the fact, usually for the last two to three financial years.
The three core questions
What belongs to it? Assets and liabilities have to be allocated to the unit being separated. For machinery and customer contracts that is simple; for a building with several occupants, shared credit lines or group-wide pension commitments it is not. Every allocation is an assumption, and every assumption is challenged in due diligence.
What costs does the unit carry? Central functions – accounting, IT, HR, legal, management – were provided by the group and often charged through an allocation that says nothing in business terms. For carve-out statements they have to be measured afresh, at the level they would actually cost the standalone business. These stand-alone costs are the most frequently disputed item in the whole exercise: they reduce reported earnings and with them the price.
What falls away, what is added? Intra-group revenue and supply relationships have to be identified as such – will they survive the sale, and on what terms? Frequently they continue for a limited period under a transitional services agreement, whose pricing then belongs in the numbers.
Distinction from audited accounts
Carve-out financial statements are not statutory accounts. No law requires them, they are prepared on an agreed basis, and depending on deal size an auditor issues a report on them. Their robustness therefore stands or falls with the disclosure of assumptions: which allocation was replaced by what, on what key shared costs were split, what was deliberately left out.
What that means for the finance function
Carve-out statements are project work over several months and occupy capacity that is not free in day-to-day operations. They require access to data that group systems do not cut along this dimension, and they must document decisions that will later be negotiated. That is precisely why they are one of the typical triggers for an interim CFO mandate: the task is time-limited, technically specific, and must not stop the running business.