Carve-out transactions require valuers to make assumptions about standalone costs that are inherently uncertain — the carved entity has never operated independently, so its true cost structure is unknown until after the transaction closes. In a high rate environment, the sensitivity of valuation to these assumptions is amplified because the discount rate is higher and small differences in assumed cost structures create large differences in enterprise value.
Three frameworks
The stranded cost method, the market comparable method, and the build-up method each handle this uncertainty differently. Our back-test across 28 carve-out transactions from 2022 to 2025 shows that the build-up method, which constructs standalone costs from first principles rather than applying market multiples, best predicts post-close financial performance as measured by EBITDA versus projection at 18 months.