DC Discusses: How portfolio focus is driving growth in corporate carve-outs

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Disposal as a proactive strategy

Capital costs more than it did through the last cycle in the 2010s, so every dollar or euro tied up in a business that no longer ‘fits’ now carries a comparatively higher opportunity cost.

A business can be perfectly good quality, and still be classed and sold as a non-core asset, because the capital and management time it absorbs could work harder elsewhere. Non-core assets being sold can be market leaders with strong management, loyal customers and proven products, but they may just not be the right fit for the parent company.

For a buyer, acquiring such a business can be a faster, more certain route to scale than building the same capabilities from scratch. The opportunity is to give a good asset the focus and support its former parent could not provide.

How governance reform is reshaping ownership in Japan

Governance reform, scrutiny of capital efficiency and pressure on portfolio returns have pushed corporates to re-examine holdings that might once have stayed within the group indefinitely, with the Tokyo Stock Exchange’s guidance prompting boards to justify what they own. The exchange updated that guidance in July 2026, with a particular focus on the appropriate allocation of management resources. We believe this has prompted many Japanese corporates to reassess businesses that sit outside their core strategic priorities.

We have seen this directly across recent mandates, acting both for Japanese sellers and for the private equity buyers of their assets.

One nuance is that we have observed this kind of activity more on the sell-side than the buy-side. When Japanese and other Asian acquirers buy in Europe, we believe they generally prefer a clean, standalone target to a complex carve-out. For many Asian corporates, a disposal is not yet a routine portfolio decision in the way it has become in the US, though we believe governance reform in Japan is changing that.

Portfolio discipline under economic pressure in Germany

Portfolio discipline is particularly visible in Germany, where a weak economy has fueled the trend. Large industrial groups are divesting businesses as they streamline to recover profitability and align investment portfolios with strategic contribution, return and capital commitment.

One sector under pressure is automotive, as OEMs and suppliers clean up sprawling portfolios while absorbing the cost of the shift to electric vehicles and confronting overcapacity. Another is energy. German industrial electricity was the third most expensive in the EU in the second half of 2025, and industrial gas was likewise third highest. With those costs, asset-heavy and energy-intensive businesses, including commodity chemicals, are increasingly hard to justify on German soil.

For the more difficult but still sound situations, Germany has a deep bench of specialist investors built around carve-outs. In our view, their proposition rests on certainty rather than price, as they can take on complex separations that strategic buyers avoid, and find value in the difficulty of the separation as much as for the asset.

Shrinking to grow in Healthcare

In Healthcare, we see carve-outs often driven by the pursuit of growth rather than the need to raise capital. We are seeing more carve-outs than at any point in recent years, and we believe the great majority are planned well in advance to improve focus, growth and margins.

The main method, long championed by Pharma, is ‘shrink-to-grow’: concentrating on where you can win over a ten-year horizon and divesting tail-end products, particularly those facing patent expiry, to free capital for growth. Alongside this strategy is a focus on faster-growing segments and unlocking a conglomerate discount by taking private under-optimized public companies and pruning for corporate simplicity.

In Pharma, a wave of tail-end brand disposals has created the next generation of specialty generics manufacturers. In MedTech, competition and the need for category scale are prompting many exits. We also see smaller carve-outs drawing strategic bidders, while the larger and more complex ones attract far more private equity. In our view, the winners are not getting bigger but getting sharper, and every disposal is a decision on where to double down.

Consolidation and the disciplined seller in Chemicals & Materials

Chemicals & Materials is a consistent sector for generating carve-outs, as we have observed across our recent mandates. In our view, the main drivers are private equity capital raised specifically for carve-outs, new chief executives pruning the portfolio, and consolidation. We anticipate combinations of scale to prompt spin-offs and defensive carve-outs from rivals seeking scale.

Another driver worth noting is strategic repositioning. Particularly in Europe, high energy costs, complex logistics and inflexible labor markets have left a cohort of assets hard to underwrite, attracting differing responses to this challenging environment. Sales of this kind often attract specialist buyers who have the appetite and operating capability to take them on.

Much of the flow, though, involves good businesses: a small unit sold because it commands a premium multiple, or a sound business divested by an overleveraged owner for lack of scale within the parent. The sector’s international character also lets advisers add value beyond running a process, in particular by testing the wider buyer universe when a single unsolicited approach risks underpricing a business.

This article has been prepared solely for information purposes and is not intended to function as a “research report.” In particular, this means that it is not intended, nor does it contain sufficient information, to make a recommendation as to the advisability of investment in, or the value of, any security.   

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