A carve-out is a financial transaction that involves a parent company splitting off some of its operations as an independent company in order to capitalize on a particular business segment. It enables a parent company to raise funds and still retain an equity stake in the newly-established subsidiary.

Through a carve-out, the parent company will provide the capital needed to spin off its subsidiary. The parent company will then offer its shares in the new company to the public via an Initial Public Offering (IPO). This will create a new set of shareholders who will be able to purchase shares in the newly-established subsidiary.

The funds raised through the carve-out will help the parent company to capitalize on a particular business segment that may not be part of its core operations. This allows the parent company to gain further access to capital while still remaining directly invested in its subsidiary. Through a carve-out, the company can reduce its own overhead costs, raise necessary funds and expand its operations.

A carve-out is similar to the spin-off of a company which involves the parent company transferring ownership of some of its shares to existing shareholders. This can be done without initiating an IPO, since shares do not need to be sold to new shareholders. However, a carve-out generally provides a larger influx of capital due to the new shareholders taking part in the IPO.

Carve-outs can be a very effective form of business financing and allow parent companies to gain access to additional funds while still remaining invested in an independent company. As such, carve-outs are complex transactions and usually require the assistance of an experienced financial advisor to ensure the successful completion of the process.