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Nate Medoff, CEO of ContinuServe, leads a business services firm providing finance, HR and technology to SMBs and mid-market firms.

getty​Ask most dealmakers to describe the wave of corporate separations building right now, and you will get a financing story, a portfolio strategy story or a private equity deployment story. All three are accurate, and I would add a fourth. This is an execution story, and the execution gap is where most of the value in this cycle will be won or lost.

The uptick in volume is real. Divestitures grew 30% globally in 2025 to $1.6 trillion, “the highest level since 2021,” according to McKinsey’s latest M&A research. I hear the same thing from CEOs and PE sponsors regardless of sector. Boards are simplifying their portfolios, and private equity has capital that needs a home. ​

What is different this time is the motive. Past waves of corporate separations were mostly about repairing the balance sheet, companies selling assets to service debt. AURELIUS Group’s latest global carve-out survey found that only 5% of respondents now cite debt reduction as a driver, down from 52% two years ago. Boards are streamlining by choice rather than necessity, and in my experience, the prioritization of AI investments and strategy is accelerating the divestment of non-core assets faster than prior technology shifts.

The Day-One Problem When a business unit separates from its parent, the strategy, customer relationships and distribution channels go with it. However, much of the general and administrative functions and systems infrastructure does not. Payroll has been running on a shared human resources information system (HRIS) platform. Financial and operations reporting is driven by the parent’s enterprise resource planning (ERP) and business intelligence (BI) setup. Systems access and cybersecurity flow through the corporate network. Period end close and accounts payable are frequently staffed by a shared services team serving multiple business units. Most of this won’t convey when the transaction closes and will need to be replaced. A transition services agreement (TSA) buys some time, but they are expensive and service quality tends to slip as the seller gets pulled toward other priorities.

Mapping the dependency chain before the transaction closes helps, but defining the proper sequencing itself is mostly straightforward: ERP lift and shift requires stable infrastructure, new reporting requires data separation and migration, and payroll execution needs an HRIS platform. The harder problem is the volume of decisions that sit inside those parallel workstreams. Which payroll platform? Lift the ERP as is, or use the moment to right-size and replace it? What should reporting look like without the parent’s BI environment? Each of those choices shapes how the business operates for years, despite having only a few weeks to make the decision. Mid-market carve-outs rarely command a TSA long enough to deliberate, so the real skill is collecting and disseminating the supporting information quickly enough that leadership can make sound choices in rapid succession.

Making the right calls is only half the battle. Executing across multiple, competing work streams requires program management and governance strong enough to keep every one of them moving at once. Larger separations solve for that by hiring a bench of people and providers who have done it before. Mid-market carve-outs are typically more budget constrained, so the choice of approach and outside support tends to make or break whether the new company is ready to operate when the original TSA term expires. When it’s not, management is left with a difficult choice: separate with risk and instability or pay a premium to extend a TSA with a parent whose attention has already moved on.

The Middle-Market Reality KPMG’s 2026 Global M&A Outlook, based on a survey of 700 dealmakers, found that operational disentanglement is the top execution risk cited by respondents, ahead of both valuation complexity and IT separation. The same survey found that “95% of PE dealmakers and 83% of corporate dealmakers“ expect their next deal to close below $1 billion, with $250 million to $500 million the most commonly cited range. ​

These are the deals with marginal scale and the least leverage in TSA negotiations. A $300 million carve-out needs nearly the same breadth of back-office capabilities as one ten times larger. Moreover, standing up a new back-office can be just as taxing and complex. What shrinks is the team available, timeline and budget to do the work, not the work itself.

The return data makes the stakes concrete. Bain’s analysis of carve-out deals completed between 2013 and 2024 found that top-quartile outcomes deliver roughly 2.5 times invested capital against an average closer to 1.5 times. Bain traces most of that gap back to execution rather than deal structure or entry price. Financial engineering used to carry a large share of private equity returns. That tailwind is largely gone. Operational value creation is what is left, and in a cycle concentrated below $1 billion, the quality of the separation is what determines the return.

What Prepared Looks Like The top performing operators and investors tend to share one habit. They treat day-one readiness as a pre-close problem instead of a post-close scramble. They map the system dependencies during diligence, staff program management before the deal closes, and build the processes and governance so the TSA clock runs in their favor rather than against them. In the separations I have been part of, that habit is the clearest predictor of whether the first year gets spent building the business or firefighting. The ones who skip it typically find out the hard way how much invisible work the parent company’s infrastructure was doing for them.

The gap between deal close and stand-alone viability is predictable, but how much value it consumes over the separation timeline is not. For operators, that means mapping the operational separation as part of the deal itself, before signing. For investors, it means conducting that operational lift with the same seriousness given to the valuation model, since it determines whether the modeled return is attained. That is the question this carve-out cycle will answer, deal by deal, long after the announcements stop making headlines. ​

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