Principles of Private Firm Valuation

26 PRINCIPLES OF PRIVATE FIRM VALUATION

Company A without subsidiary B

Subsidiary B

Shareholders

Shareholders implicity own 100% of equity of subsidiary B through their

Company A shares.

FIGURE 2.5 Equity Carve-Out

Company A without subsidiary B

Portion of

sub B equity

not sold

Shareholders

NEW INVESTORS

X% of sub B equity sold

for cash to new investors

X% of Company

B shares

Shareholders now own 100% of

Company A (without B) and (1-X)%

of Company B implicitly through

their Company A shares.

(b)Company after Carve-Out

(a)Company before Carve-Out