The Corporate Carve-Out Playbook: What UK CEOs Must Own in 2026

Corporate carve-outs are the defining strategic transaction of 2026. Both EY and KPMG identify this as the year UK CEOs are refocusing on portfolio discipline — separating non-core assets to unlock value, reduce complexity, and concentrate capital on businesses where they hold genuine competitive advantage.

Why Is 2026 the Year of the Corporate Carve-Out?

Three forces are converging to make carve-outs the dominant strategic transaction of 2026. First, shareholder and regulatory scrutiny of conglomerate structures has intensified: diversified businesses are increasingly being asked to justify portfolio breadth against focused competitors, and activist investors are pressing for disposal of underperforming divisions. Second, private equity entered 2026 with record levels of dry powder and is actively seeking carve-out opportunities, particularly in business services and the mid-market, where recurring revenue streams can justify premium entry prices. Third, the M&A market is recovering from its 2023–2024 trough, with EY reporting that 87% of UK CEOs expect to increase M&A activity in the next 12 months.

According to KPMG’s 2026 UK M&A Outlook, carve-outs are expected to make up a significant share of deal flow in 2026, with a number of large corporates actively reviewing portfolio composition while private equity seeks to deploy capital at attractive entry points. The prior year provided vivid examples: Reckitt’s divestiture of its Essential Home business to Advent International at a £3.5 billion valuation, and Unilever’s demerger of The Magnum Ice Cream Company at £7.8 billion, both demonstrated that disciplined portfolio decisions can generate substantial value.

For CEOs, the strategic question is not whether to consider carve-outs, but whether your portfolio review process is systematic enough to identify the right candidates before activist pressure forces the issue.

Executive Action:

• Initiate a systematic portfolio review with a clear framework: for each business unit, assess strategic fit, capital intensity, management bandwidth, and the value achievable in a sale versus continued investment.
• Brief your board on carve-out market conditions — including PE appetite, available private credit for deal financing, and comparable transaction valuations — before activist pressure creates a reactive rather than strategic disposition process.
• Use the INFORMD Technology Strategy Review template as a starting framework for assessing digital and technology assets within your portfolio review.

What Makes a Carve-Out Succeed or Fail?

Carve-out success rates are materially lower than acquisitions. The core difficulty is that a business being separated from its parent typically relies on shared services, systems, contracts, and management capacity that must be either replicated or replaced by the buyer at significant cost. According to EY’s research on corporate separations, the value destruction in failed carve-outs almost always originates in underestimating the cost, complexity, and time required to achieve a clean legal and operational separation.

KPMG’s March 2026 carve-out report identifies three critical success factors. First, early investment in a detailed separation management office (SMO) — a dedicated team with authority to make decisions across legal, finance, HR, IT, and commercial workstreams. Second, a realistic assessment of “stranded costs” — the overheads that remain in the parent company after the carve-out completes, often underestimated because they were allocated to the divested business. Third, a disciplined transition services agreement (TSA) strategy: TSAs provide continuity post-completion but create ongoing complexity and distraction; the best CEOs plan for TSA exit from the outset rather than treating them as a long-term solution.

The technology separation element deserves particular attention. Legacy ERP systems, shared data estates, and joint cybersecurity infrastructure are consistently identified as the longest-lead items in any carve-out. CIOs must be engaged from the earliest stages of separation planning — not brought in once the deal is signed.

Executive Action:

• Before committing to a carve-out, commission a separation readiness assessment covering shared services, IT systems, legal entity structure, and key people dependencies. This assessment should produce a realistic separation cost and timeline, not an optimistic vendor pitch.
• Establish a separation management office with a dedicated CEO-level sponsor, ring-fenced resource, and governance cadence independent from the ongoing business.
• Model stranded costs explicitly and include them in the board paper for deal approval — treat stranded costs as a disposal cost, not a post-deal surprise.

How Should CEOs Approach Portfolio Review for Carve-Out Candidates?

A credible portfolio review applies a consistent set of criteria to each business unit, free from the organisational politics that typically protect underperforming divisions. The framework should address four questions: Does this business unit enhance or dilute the parent’s strategic narrative with investors? Is the business growing at an acceptable rate relative to its capital intensity? Could a different owner — strategic or financial — extract more value from this asset? And would the management team and capital currently allocated to this unit generate better returns if redeployed elsewhere?

According to EY’s CEO Outlook 2026, 78% of UK CEOs have altered their strategic investment plans in the last 12 months due to geopolitical or trade policy developments. For many, this has accelerated the shift from global diversification to focused home-market or core-competency strategies — creating a natural set of carve-out candidates among international units or legacy businesses acquired during earlier growth phases.

The portfolio review should also address buyer universe and timing. Private equity appetite for carve-outs is high in 2026, but PE buyers require businesses with standalone operational capability. If a carve-out candidate requires 24–36 months of separation work to become independently viable, a trade sale to a strategic buyer who can absorb the business into existing infrastructure may be a superior route.

Executive Action:

• Apply a consistent scoring framework to all business units rather than reviewing only those flagged by management — portfolio reviews lose value if they exclude politically protected businesses.
• Assess both PE and strategic buyer universes for each carve-out candidate before selecting a disposal route — the optimal process depends on the business’s standalone capability and the buyer market.
• Time portfolio announcements to align with market conditions: PE deal activity peaks in H2 2026, suggesting that carve-out mandates initiated now are well-positioned for completion in the active deal window.

What Is the Board’s Role in Approving and Overseeing Carve-Outs?

Under the UK Corporate Governance Code and the Companies Act 2006, material asset disposals require board approval. For significant carve-outs — those representing more than 25% of the parent’s assets, revenues or profits — the UK Listing Rules may also require shareholder approval, making the governance process a public event with its own timeline and disclosure obligations.

The board’s governance role extends beyond approving the disposal. Directors should require regular progress reports from the separation management office, challenge the assumptions in separation cost and stranded cost models, ensure that key employee retention arrangements are in place for personnel critical to separation success, and confirm that the disposal does not leave the parent with an unacceptable risk profile — including cybersecurity, regulatory and contractual risks that transfer or remain following separation.

Remuneration Committees should also ensure that executive incentive structures support carve-out execution rather than creating perverse incentives. If LTIP metrics are tied to group revenue or headcount, a significant disposal may require a mid-cycle recalibration to maintain management alignment with the board’s strategic objectives.

Use the INFORMD executive briefing library to access M&A governance briefings, and the executive self-assessment tools to benchmark your board’s strategic decision-making processes against leading practice. For transaction-specific governance, see the INFORMD Capital Approval Assessment template.

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