A divisional buyout or carveout, in finance, is a transaction in which a corporate division

Corporation

A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

, business unit or subsidiary

Subsidiary

A subsidiary company, subsidiary, or daughter company is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary's stock. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a...

 is acquired

Mergers and acquisitions

Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...

 using the same financial structuring as a leveraged buyout

Leveraged buyout

A leveraged buyout occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage...

.

Typically, in these transactions, the financial sponsor

Financial sponsor

A financial sponsor is a term commonly used to refer to private equity investment firms, particularly those private equity firms that engage in leveraged buyout or LBO transactions....

 will turn the acquired business into a standalone company, necessitating the creation of certain functions that were formerly provided by the parent company.

Divisional reverse leveraged buyout (D-RLBO)

A D-RLBO is a leveraged buyout of a division or subsidiary that subsequently comes to trade on the public market

Public market

Public markets are markets, in public spaces, where independent merchants can sell their products to the public. Typical products sold at public markets include fresh produce and baked goods, locally raised meats and dairy products, and various other food items and handcrafted goods...

s. From the point of view of a divesting firm

Divestment

In finance and economics, divestment or divestiture is the reduction of some kind of asset for either financial or ethical objectives or sale of an existing business by a firm...

, the D-RLBO permits the sale of a subsidiary

Subsidiary

A subsidiary company, subsidiary, or daughter company is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary's stock. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a...

 to its management and/or private investors who subsequently restructure its assets and capital structure with the purpose of enhancing overall firm value.

Example: Avon Products Inc.

Avon Products

Avon Products, Inc. is a US cosmetics, perfume and toy seller with markets in over 140 countries across the world and sales of $9.9 billion worldwide as of 2007.-Business Model:...

 divested specialty jeweler Tiffany & Co.

Tiffany & Co.

Tiffany & Co. is an American jewelry and silverware company. As part of its branding, the company is strongly associated with its Tiffany Blue , which is a registered trademark.- History :...

 to private equity

Private equity

Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....

 investors who subsequently accomplished an initial public offering

Initial public offering

An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...

(IPO).