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 — Q2 2023, the number of divestiture deals grew by 85% quarter on quarter, while overall merger and acquisition activity grew by only 11%. At the same time, private equity buyers’ interest in divestitures grew significantly, with private equity accounting for 29% of the buyers in the second quarter of 2023 compared with 2% in the first quarter.

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.