Carve-Outs: Practical Tips for Improving Deal Certainty

Key Takeaways

• 80% expect more non‑core divestitures in 2026
• 73% cite core‑focus as top carve‑out driver
• 72% say trade tensions influence divestiture decisions
• Wrong‑pocket clauses protect buyers from post‑closing gaps

Pulse Analysis

Carve‑outs are gaining momentum as corporations sharpen their strategic focus. The AURELIUS 2026 survey reveals that eight in ten companies plan to shed non‑core assets, driven largely by a desire to concentrate on core competencies. This shift reflects a broader macro‑economic backdrop where rising tariffs and protectionist policies—cited by 72% of respondents—are prompting firms to reassess geographic exposure and supply‑chain resilience. Notably, the traditional impetus of deleveraging has receded sharply, with only 5% of executives prioritizing debt reduction, underscoring a transition from balance‑sheet engineering to strategic realignment.

Legal practitioners are responding with more sophisticated deal‑structuring tools, as illustrated by BakerHostetler’s recent memo. Central to the guidance is the "wrong pocket" provision, a contractual safety net that obligates the party misallocating an asset or liability to transfer it post‑closing, typically without extra consideration. Buyers favor broad language to capture any diligence gaps, while sellers push for narrow scopes to avoid open‑ended obligations. The memo stresses that such clauses complement—not replace—rigorous due‑diligence and clear transaction boundaries, reinforcing certainty in fast‑tracked M&A environments.

Beyond the wrong‑pocket clause, the memo tackles ancillary challenges that frequently derail carve‑outs. Accurate carve‑out financials, well‑drafted transition service agreements, and careful handling of employee and data migrations are critical to preserving value. Insurance coverage and restrictive covenants must be calibrated to the new entity’s risk profile. For corporations and advisors alike, integrating these practical considerations into the deal blueprint can accelerate execution, mitigate surprise liabilities, and ultimately enhance the strategic payoff of divestiture programs.