Carve-out opportunities arising for SMEs as larger firms divest

A growing number of larger UK firms are seeking to sell off business units in order to refocus, streamline or raise funds. As this trend gathers pace, smaller buyers are presented with the opportunity to acquire high-value operations through carve-out deals.

Such acquisitions can enable smaller and medium-sized firms to bring in specialist expertise, top-class talent and proven revenue streams, tap into high-level brand prestige and customer bases, expand geographically, diversify operations and, overall, transformatively accelerate their growth strategies.

However, competition for these assets is likely to be fierce, with large businesses potentially seeking to pick up new units as they look to strengthen core operations or move into adjacent markets, and many other smaller and medium-sized bidders likely to be considering how carve-outs can be used to their own advantage.

In such an environment, the key issue for SME buyers targeting carve-outs is how they can get wind of these opportunities early and move decisively to ensure they don’t miss out on the top targets.

The divestment wave
According to chartered accountants Lubbock Fine, UK carve-out deals - in which a company sells off one part of its business - rose 8 per cent to 468 in 2025, up from 435 in 2024, with these deals worth a combined £63bn.

This continued a trend that had already been apparent in 2024. KPMG data suggested that carve-outs comprised close to a third of all UK deals announced in 2024, with public-company divestitures growing 16.3 per cent between 2023 and 2024 (KPMG). In 2024 alone, Trustnet counted more than 20 significant carve-outs from UK-listed companies.

This has occurred even as the wider UK deal market has contracted. PwC recorded overall UK deal volumes falling 12 per cent to 2,991 in 2025. Against this backdrop, divestments gained share in a more selective market. Moreover, this trend is continuing.

Some might even go further to suggest that the tide began turning in the 1970’s, following what is referred to as the third wave of M&A running from around 1965 to 1970. This was the conglomerate era, marked by cross-industry diversification to spread economic risk. This era abruptly collapsed due to a combination of rising capital costs, shifting regulatory environments, and structural inefficiencies.

KPMG forecast that 2026 would be the Year of the Carve Out, with corporates focusing on core assets while private equity and trade buyers deploy capital "at attractive entry points". This prediction is seemingly being borne out, with Citi UK CEO Tiina Lee recently stating that UK M&A is “on fire”, driven by an “ongoing theme around UK plc simplification.”

Citing deals including the merger of McCormick and Unilever Foods, Lee asserted that major UK businesses are increasingly seeking to streamline operation and refocus on their core competencies.

For smaller and medium-sized buyers considering carve-out deals, this accelerating trend creates a growing structural pipeline of established, revenue-generating business units. However, sourcing such opportunities may require different channels from a typical open-market acquisition search.

Why companies are divesting
The underlying drivers vary by company but recur across the market:

Refocusing on core operations: As noted by EY, divesting "allows a group to refocus its attention on its core business and drive higher rates of growth". In a more complex, competitive operating environment, divestments can help larger companies to shed non-performing or non-core units and redirect funds and staff more effectively into their main offering.

Raising cash and reducing debt: Divestments can help businesses raise the funds they need to invest in growth, talent, technology and acquisitions. They can also be a valuable tool for reducing debt, such as in the case of Diageo's African brewing disposals, which were explicitly aimed at accelerating deleveraging.

Removing the "conglomerate discount": As outlined by Trustnet, many 2024 carve-outs sold at higher multiples than the parent group itself, a trend described as "shining a light on the undervaluation of the remaining business".

Investor pressure: Many private equity firms have come under growing investor pressure to execute transactions over recent years, following long periods in which powder has been kept dry and investment hold periods have crept up.

Divestments not only equal returns for investors, but can also generate the funds required to make fresh investments. Meanwhile, some will be facing pressure from activist investors to make divestments that bring the broader business more in line with an overarching strategy. Smiths Group's break-up, for example, followed pressure from activist Engine Capital, while Latham & Watkins has flagged activist-driven divestitures as a defining 2025 theme.

Under-articulated value left on the table: KPMG notes that sellers who fail to build a clear value case for a unit price it at a discount - presenting an opening for prepared buyers.

The strategic case for SME buyers
In a single transaction, a carve-out can deliver benefits that organic growth would take years to build. As opposed to requiring a buyer to build from scratch, the target arrives with an established, revenue-generating operation, its own trade, customer contracts and brand.

Trained staff and management typically transfer with the unit, under TUPE protections where the business continues to trade. PwC notes that carve-out buyers can "breathe fresh life into previously peripheral non-core divisions," gaining complementary capability or market entry that would be slow to replicate organically.

The speed of this route can fit comfortably into a broader buy-and-build or consolidation strategy and potentially offer greater value than an outright acquisition.

Valuations can also work in a prepared buyer's favour, since carve-out complexity narrows the pool of interested purchasers. Lubbock Fine's Rahid Rashid has overserved that “complexity can limit the pool of potential buyers, but it also creates opportunities for well-prepared acquirers to secure assets at competitive valuations".

Trustnet's analysis of Capita's software-unit sale to MRI Software (valued at roughly £200 million, against a £264 million Capita market cap, for a unit representing only 14 per cent of group EBITDA) illustrates how undervalued a non-core division can be within its parent.

A Krannert School of Management study cited by AJ Bell found spun-out subsidiaries outperformed their former parent by more than 20 per cent over the first three years.

Case study: INEOS - building a chemicals group from corporate carve-outs
INEOS began in 1998 with the acquisition of a former BP chemicals operation in Antwerp from Inspec. Led by Jim Ratcliffe, the management buyout gave the newly formed company an established industrial site, experienced employees and operating cash flow rather than requiring it to build a chemicals business from scratch.

The Antwerp purchase also established a model that INEOS would repeatedly apply: target businesses being sold by larger groups, particularly assets regarded as non-core, and run them as focused, independently accountable operations. Rather than integrating acquisitions into a heavily centralised structure, INEOS organised businesses around distinct product lines, with management teams responsible for their own performance.

In 2001, the company accelerated this strategy through several purchases, including ICI’s Chlor-Chemicals and KLEA operations, Crosfield’s silica business and Dow’s global ethanolamines activities. These transactions added products, customers, technical expertise and geographic reach while creating opportunities to combine complementary plants and supply chains.

The lesson for smaller acquirers is not simply to seek undervalued assets. INEOS combined opportunistic purchasing with clear sector expertise, rapid decision-making and rigorous operational responsibility. Its early acquisitions were valuable because they fitted a coherent industrial strategy and provided platforms from which further deals could be pursued. The result was a repeatable carve-out model that enabled INEOS to grow far faster than organic expansion alone would have allowed.

Also read: How Sir Jim Ratcliffe built INEOS into the UK’s biggest private company

Risks SME buyers must plan for
Carve-outs are often seen as inherently harder to execute than acquiring a standalone independent business. This is because the target is typically deeply integrated with the seller operationally, legally and in its reporting structure.

As a result, buyers should plan carefully for the following:

Transitional Service Agreements (TSAs): The seller may continue providing IT, finance, HR, payroll and facilities support after completion. In some cases, full technology separation can take up to one or two years, and extensions often carry a cost premium.

Separating shared services and IT from legacy parent systems, where software licences may be non-transferable or restricted by change-of-control clauses.

Standalone cost base: Historical allocated overheads rarely reflect the true cost of running the unit alone, so buyers need a bottom-up standalone cost model to arrive at credible adjusted EBITDA.

Stranded costs and dis-synergies, where the unit may lose the benefits of the parent's scale, such as group purchasing terms, on separation.

Diligence complexity: Since carve-out financials are likely to be unaudited as a standalone entity, careful buyer-side scrutiny and an even more forensic due diligence process are advisable.

Buyers should seek to identify shared elements - products, processes, people, technology, assets - early, build a clear end-state vision, define a target standalone cost structure, and avoid assuming the seller will absorb all separation costs.

Smaller buyers without in-house private-equity-style capability can still emulate this discipline: line up financing and advisers in advance, build the standalone cost model early, and plan the TSA exit before completion.

Routes to sourcing carve-out opportunities
The core challenge for smaller acquirers is sourcing information about pending carve-out opportunities in time to be able to enter the bidding. It’s a simple fact of the M&A market that large strategic buyers and private equity funds with dedicated corporate development teams typically learn of divestments earliest.

However, there are a number of resources that smaller buyers can use to glean information about potential carve-out opportunities. While no single channel may be comprehensive on its own, there are still several routes accessible to SMEs.

Corporate finance advisers and business brokers remain the most direct route into a live process. The UK market for these intermediaries is tiered by deal size, running from business transfer agents such as Hilton Smythe and Ernest Wilson, which typically handle sub-£2m disposals, up to corporate finance houses such as Clearwater International, Lincoln International, Oakley Advisory and KPMG Small Cap, which run £5m–£100m-plus auctions.

As these processes are referral-based and reactive, SME buyers should not wait to be approached. Registering acquisition criteria proactively with multiple intermediaries - specifying sector, size and deal structure preferences - increases the likelihood of being included on a bidder list when a relevant mandate arises.

Adviser sale-mandate press releases offer a free, if indirect, early signal. Firms such as Kroll and FTI Consulting routinely publicise when they have been mandated to run a sell-side process, as with Kroll's advisory role on Rotork plc's divestment of two non-core businesses.

Monitoring these announcements does not guarantee inclusion in a bidder list, which is usually curated by the adviser, but it does reveal which advisers are active in a given sector, giving SMEs a clear starting point for direct outreach and relationship-building ahead of the next mandate.

Stock exchange disclosures via the Regulatory News Service (RNS) provide a free and real-time channel for tracking listed-company disposals, which must be announced under the "DIS" headline code.

These disclosures are most useful not for catching a live auction - by the time a disposal is announced, the process is often already agreed or well advanced - but for identifying divestment programmes earlier, through "strategic review" announcements that signal a company intends to sell one or more divisions before a specific buyer or process is confirmed. SMEs that track these signals can position themselves with the relevant advisers prior to a formal sale being launched.

Insolvency practitioners and administrators represent one of the most accessible channels for distressed carve-outs. Because insolvency practitioners act under significant time pressure, they favour buyers who can demonstrate financing is already in place, giving well-prepared SMEs a genuine edge over larger but slower-moving rivals.

Pre-pack sales to connected parties carry additional scrutiny, requiring either creditor approval or an independent evaluator's report, which buyers should factor into their timeline expectations. Building relationships with regional insolvency practitioner firms in advance - rather than approaching them only once a target has appeared - allows SMEs to be considered early when a distressed unit comes to market.

Direct outreach to corporate development teams is more resource-intensive but is open to any SME with genuine sector credibility. EY research has found that 78 per cent of companies admit they "continue to hold onto assets too long," pointing to a latent pool of divestment candidates that a proactive, well-targeted approach can help bring to market sooner.

This route depends on the buyer being able to articulate a clear strategic rationale and credible financing capacity when making contact, since corporate development teams are unlikely to engage seriously with speculative or unfunded approaches.

M&A intelligence databases, such as Experian MarketIQ, Mergermarket, PitchBook and Preqin, offer systematic tracking of disclosed UK transactions, with Experian MarketIQ alone tracking every disclosed deal above £500,000.

These platforms typically carry premium, institutional-level pricing that puts them out of reach for many SMEs directly, but the data can often be accessed indirectly through an adviser relationship, or via more accessible alternatives such as Business Sale Report's Off-Market Lens service, which is designed for smaller buyers.

Private equity portfolio monitoring allows SMEs to anticipate exits by tracking the known holding periods of PE-backed businesses in their target sector. BKL notes a "backlog of delayed exits" now returning to market, while Experian recorded a 32 per cent rise in PE exits in 2024, suggesting this backlog is beginning to clear.

This approach is feasible for SMEs to run on a focused, sector-specific target list using Companies House filings to identify PE ownership and approximate holding duration, though comprehensive coverage across a wider universe of targets tends to favour better-resourced teams.

Industry trade press, M&A monitors and online business-for-sale marketplaces round out the toolkit. Trade press and deal trackers such as the Dealsuite UK&I M&A Monitor are low-cost and useful for general market awareness of active consolidators and sector trends, though they typically lag behind the formal sell-side mandate.

Online marketplaces are the most accessible channel of all, but rarely carry genuine corporate carve-outs, which are almost always run through advised processes rather than open listings.

While no single channel is sufficient in isolation, the most effective approach for a smaller UK buyer combines free, real-time public monitoring (RNS disclosures, trade press and adviser mandate announcements) with proactive, sustained relationship-building across corporate finance advisers, insolvency practitioners and corporate development contacts, supplemented where affordable by a data subscription or specialist off-market service to widen sector-wide coverage beyond what public disclosures alone can offer.

In late 2025, consumer healthcare group Covestus Holdings struck a deal to acquire the Ultradex and Dentyl oral-care brands from listed counterpart Venture Life Group in a deal worth up to £4.5 million.

The deal involved a £3.75 million cash consideration on completion, along with an additional earn-out of up to £750,000 dependent upon the brands hitting agreed trading targets over the next year. During the most recent financial year, the oral care assets generated revenue of £4.3 million and adjusted EBITDA of £400,000.

The deal was backed by private equity firm Maven Capital Partners, which committed up to £15 million to Covestus’ buy and build strategy through its MBO Fund II. Through this strategy, Covestus is seeking to create a scaled platform of specialist healthcare brands that address chronic conditions and preventative health requirements.

The addition of UltraDEX, a clinically supported halitosis treatment range, and leading mouthwash brand Dentyl were described as expanding Covestus’ oral care footprint and strengthening its position in the UK and international markets.

Both of the acquired brands boast extensive distribution networks across major retailers and e-commerce platforms, providing a strong foundation for Covestus to unlock further growth through targeted investment and brand revitalisation.

Executing the deal: practical considerations for SMEs
Once an opportunity is identified, SME buyers competing against private equity and larger strategics need to compensate for scale disadvantages through preparation and speed.

Pre-arranging acquisition finance, whether through asset-based lending, vendor financing or private equity co-investment, signals credibility to sellers and advisers running competitive processes, particularly in insolvency-driven sales where speed is decisive.

Building a standalone cost model before entering exclusivity, rather than after, allows a buyer to negotiate TSA scope and duration from a position of knowledge rather than reacting to the seller's terms.

Sector credibility, demonstrated through existing customer relationships, complementary operations or a track record of successful integration, can also substitute for the corporate development infrastructure that larger rivals bring to the table.

Outlook on the divestment boom
The current wave of UK spin-offs, carve-outs and divestitures is expected to continue this year, aided by improving financing conditions, strategic transformation plans and investor pressure.

For UK SMEs, this represents a durable pipeline of established, cash-generative business units that can offer a faster and potentially cheaper route to scale than organic growth or acquiring a whole independent company.

This is provided the buyer manages separation complexity with the same rigour that specialist carve-out investors apply, and builds the sourcing discipline needed to compete for these assets before larger, better-resourced rivals do.

By building and maintaining a strong network of sources for potential divestment opportunities, developing a strong acquisition strategy backed by solid financing and prioritising a comprehensive integration process, SME buyers in the UK could be well placed to benefit greatly from the current boom in divestments.

Also read: Carve-outs and bolt-ons surge

Big firms are divesting: how UK SMEs can buy the carve-out units coming to market

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