Carve-outs: separating software from a parent company

A carve-out separates a business from its parent, and the software separation is the part that decides whether the new company works on the first day after the parent stops helping. Everything the business shared with its parent (logins, email, finance systems, data warehouses, hosting accounts, vendor contracts, and often the code itself) has to be replaced or moved before the parent's obligation to provide it ends.

That obligation is set out in a transition services agreement, which is the contract under which the parent keeps running shared services for the carved-out business for a fixed period after closing, usually for a fee. The agreement has an end date. The end date is the clock this whole page runs against.

What does a carve-out share with its parent?

A carved-out business shares more with its parent than either side lists on the first pass. The dependency map is the document that finds the rest, and it has one row per shared thing.

Category	Typical shared items	What "separated" means
Identity and access	Company logins, single sign-on, the directory of users, admin accounts, device management	Every employee logs in to systems the new company owns; every parent account is revoked
Communication	Email domain, calendars, chat, document storage	Mail and documents live on the new company's tenant with the parent's copies deleted or archived under the agreement
Data	Warehouses, analytics, customer records held in parent systems, backups	The new company holds its own copy, restore tested, and the parent's access is cut
Hosting and code	Cloud accounts, repositories, build pipelines, secrets, domain names, certificates	Everything runs from accounts and repositories the new company owns, with secrets rotated
Shared code	Libraries, internal services and platform components the parent built and the business calls	Each one is copied, replaced or licensed, and the call to the parent's copy is removed
Finance and operations	Billing, payroll, procurement, support tooling	The new company invoices, pays and supports from its own systems
Vendor contracts	Software licences bought under the parent's master agreement	Each vendor has a contract with the new company, or a replacement is in place

The shared code row is the one that surprises operating partners. A business unit inside a large company calls the parent's authentication service, the parent's payment library, the parent's logging platform, and each call is a dependency that stops working when access is revoked. The technical due diligence guide's page on architecture describes how a review finds those calls; the dependency map is where they are listed with a date.

Reveneau takes on carve-out separations as a fixed scope built from that map, replacing each shared component behind an interface the new company owns and writing an evaluation suite per row so the business can prove each cut-over works before the parent's access is revoked. The pillar guide to technology after the deal sets the carve-out among the four phases of post-deal work.

What order should the cut-over follow?

The cut-over follows an order in which each step depends only on steps already done, and identity comes first because everything else needs someone to be able to log in.

1. Identity and access. Stand up the new company's directory, move every user, and put every system that will survive behind it. Until this is done, no other cut-over can be tested by the people who will use it.
2. Data. Copy every data store the business depends on to systems the new company owns, test a restore, and reconcile the copy against the parent's before the parent's access is cut.
3. Hosting and code. Move repositories, pipelines and cloud accounts. Rotate every secret, because the parent's copies of them are now outside the new company's control. Replace each shared library or internal service call with the new company's own, one at a time, behind a stable interface, which is the strangler fig approach Martin Fowler describes for retiring a legacy system in small steps.
4. Finance and operations. Billing, payroll, procurement and support tooling move once the people, data and code they depend on are in place.
5. Vendor contracts. Each licence bought under the parent's agreement is re-contracted or replaced. This step runs in parallel with the others and finishes last, because it depends on legal rather than engineering time.

Each step has a dependency count that falls to zero, and the count per category is what the board sees.

How does the transition services agreement set the pace?

The agreement sets the pace because every row in the map has to be separated before the date on which the parent stops providing it, and those dates differ by service. Identity might be provided for six months and finance systems for twelve. The separation plan is the map sorted by end date.

Deloitte's 2026 Global Divestiture Survey, published 26 August 2026, gives the outer timelines. Analysing 908 divestitures with deal value of $100 million or more, announced or closed between January 2020 and December 2025, it found sign-to-close timelines had lengthened by 6 percent compared with 2020, could extend to 10 months or more, and had a median of three months. Sign-to-close is the window in which the map is built and the identity step is prepared, so that the clock starting at close finds the first step already under way.

The same survey measured the outcome. In 2024, only one-third of sellers met their expectations for timing and proceeds; by the end of 2025, nearly half did. It also found 71 percent of respondents now evaluating or pursuing alternative structures for upcoming separations. Those are seller-side figures, and they describe how often a separation lands on time, which is the figure a buyer inherits.

The mistake to avoid is treating the agreement's longest end date as the deadline for everything. Each service has its own date, and an extension is a negotiation with the parent that costs money and goodwill. Plan to the earliest date in each category.

What does the fund see while the separation runs?

The fund sees a table with one row per category from the map, the agreement end date for that category, the dependency count remaining, and the planned cut-over date.

Category	Agreement end date	Dependencies remaining	Planned cut-over
Identity and access	Month 6	0	Done, month 3
Data	Month 9	4	Month 6
Hosting and code	Month 9	17	Month 8
Finance and operations	Month 12	6	Month 10
Vendor contracts	Month 12	11	Month 11

A row whose planned cut-over is later than its end date is the first item at the next board meeting, because it is a row that will need an extension or will fail. A row whose dependency count did not fall this quarter is the second item.

Beside the table sit DORA's four delivery measures for the product, described in reporting engineering progress to the fund. A separation that is being rushed shows first as a rising change fail rate, and the board can see it there before it sees it as an outage.

How is a carve-out different from a merge?

A carve-out is a merge run backwards, and the same two rules decide it. In merging two codebases after an acquisition, behaviour moves from a retiring system into a surviving one behind a stable interface. In a carve-out, behaviour moves from the parent's systems into the new company's behind an interface of the same shape, and the parent's systems are what gets retired from the new company's point of view.

Conway's law applies in the same direction. Melvin Conway wrote in 1968 that systems copy the communication structures of the organisations that build them. A carved-out engineering team that keeps reporting into the parent's platform group will keep calling the parent's platform. The team structure has to separate on the same schedule as the code, with a named engineering leader for the new company from closing; interim, fractional, or as-a-service CTO covers the options when the business did not come with one.

What should exist before closing?

Five things should exist before the transition services agreement clock starts, and each one is something the buyer can ask for during sign-to-close:

• The dependency map, with every row from the seven categories above and an agreement end date against each.
• The map sorted by end date, with the earliest date in each category as that category's deadline.
• The identity step designed and, where the parent allows it, started, so that the first weeks after close are cut-over rather than planning.
• A named engineering leader for the new company, whether interim, fractional or permanent.
• The four delivery measures captured as a baseline, so the board can see whether the separation degrades delivery.

Bain & Company's press release of 23 February 2026 says holding periods for buyout funds now sit at seven years and that typical deals need 10 to 12 percent annual EBITDA growth to return 2.5x. A carve-out spends its first year separating, which leaves six years for the growth, and every month the separation runs late is a month taken from the growth. If you would rather the separation was run by a team that takes the outcome, building with investors and their portfolio companies describes how we take that on.