Carve-out is when a business divests a subsidiary or a portion of their operations or business, whether a plant, other facility product line, business unit, or a division. A carve-out transaction does not mean that that part of the business is sold outright, instead it is when a parent company sells an equity stake in that business to the public or relinquishes control of the business whilst retaining its own equity stake.
Through this process, the company tactically separates a subsidiary from its parent as a standalone company. The new organization is complete with its own board of directors and financial statements. The parent company usually retains its controlling interest in the new company, offering strategic support and resources to help the new business succeed.
A carve-out allows a company to capitalize on a part of the business that may not be part of its core operations.