What to consider for carve-out transactions

The need for carve-out statements is growing.

The volume of IPO and SPAC transactions has decreased since reaching record levels in 2020 and 2021; however, divestiture activity (for which carve-out financial statements are often required) remains strong. As noted in Deloitte’s Divestitures Quarterly Update — Q1 2024, divestiture activity remained at near-term record levels in the first quarter of 2024 since showing significant growth in the second quarter of 2023 when the number of divestiture deals grew by 99 percent year over year. Divestitures made up 26 percent of total merger and acquisition activity, compared with 11 percent in the first quarter of 2023. At the same time, private equity buyers’ interest in divestitures continues to grow significantly, with private equity accounting for 30 percent of the buyers in the first quarter of 2024 compared with 2 percent in the first quarter of 2023.

Management often may need to use judgment and carefully plan ahead when preparing carve-out financial statements since such a process can be challenging. Considerations management should take into account when preparing carve-out financial statements include the following:

• Assembling the right team

• Determining the transaction’s structure and scope

• Materiality and evaluating misstatements

• Internal controls

• Supporting documentation

• Significant judgments and estimates

• Working with auditors
  

Continue your carve-out financial statements

Deloitte’s Roadmap Carve-out financial statements provides a comprehensive discussion of key factors for entities to consider as they prepare their carve-out financial statements.