PE Carve-Out Deals No Longer Guarantee Premium Returns

What's New

Corporate carve-outs, once reliable outperformers in private equity, have seen their returns decline dramatically since 2012, with average multiples on invested capital falling from 3.0x to just 1.5x. According to Bain's 2025 Global Private Equity Report, these transactions now slightly underperform average buyout deals despite top-quartile carve-outs still delivering solid results.

Why It Matters

The performance decline coincides with increased competition and higher acquisition prices, shrinking the margin for error and forcing sponsors to substantially improve their execution capabilities to generate top-tier returns. This market evolution has reduced carve-out volume by approximately 50% to just 15% of total buyouts.

Big Picture Drivers

• Operational shortfalls plague recent deals, with revenue growth improvements dropping from 31% to 17% and margin improvements plummeting from 29% to just 2% since 2012.

• Competition intensity has eliminated the traditional "carve-out discount" as more firms pursue these transactions and corporate sellers run sophisticated auction processes.

• Separation complexity creates execution challenges as sponsors must extricate personnel, assets, legal entities, data, and systems while managing transition service agreements.

• Leadership mismatches frequently occur when corporate-bred executives struggle with PE's accelerated pace and transformation demands.

By The Numbers

• 3.0x vs. 1.8x: Average MOIC for carve-outs vs. all buyouts before 2012

• 1.5x vs. 1.6x: Average MOIC for carve-outs vs. all buyouts since 2012

• 50%: Approximate decline in carve-out deal volume since 2012

• 27% reduction: Decline in revenue improvement capability (31% to 17%)

• 27% drop: Collapse in margin improvement performance (29% to 2%)

Key Trends to Watch

• Integration priority is shifting as successful sponsors now link separation plans directly to value-creation strategies rather than treating them as sequential steps.

• Decision acceleration is becoming crucial as top performers make tough choices immediately rather than delaying sensitive decisions.

• Talent transformation strategies are increasingly central to success, with rapid assessment and installation of change-oriented executives.

• Cultural liberation can become a competitive advantage when firms capitalize on freedom from corporate bureaucracy to drive innovation.

The Wrap

The most successful carve-out sponsors recognize that simply standing up an independent company is insufficient—they excel by implementing an ironclad value-creation plan that transforms hidden gems into strong performers, making tough decisions early and installing appropriate leadership to execute their strategic vision.