Healthcare carve-outs are nothing new. Pharmaceutical companies have spent decades shedding businesses to concentrate resources on priority areas, but the rationale behind disposals is changing, according to Andrew Murray-Lyon of international investment bank DC Advisory, part of Daiwa Securities.
Where carve-outs were once often associated with underperformance or the need to raise capital, companies are increasingly treating them as a strategic exercise: deciding where they can win, and where capital and management attention will generate the best returns.
“Non-core is an ownership judgement, not a quality judgement,” says Murray-Lyon. “A business can be well managed and still be under-owned. The constraint may not be execution, but where it sits in the competition for capital.”
A profitable business with established products and strong customer relationships may struggle to attract investment within a diversified group if it is no longer a strategic priority. A sale could enable the parent to concentrate on markets where it believes it has a stronger competitive advantage, while giving the business access to an owner with a clearer growth strategy.
“We’re moving away from selling problem assets to actively choosing where to win,” he says.
The shift reflects a longer-term reassessment of corporate portfolios. Rather than simply looking to the next two to five years, Murray-Lyon says, more companies are asking where they want to compete over the next decade.
Healthcare is fertile ground
The case for carve-outs is particularly compelling in medtech, where innovation, regulatory requirements and changing customer expectations can make focus more valuable than portfolio breadth.
Healthcare markets evolve quickly. The leading companies in individual subsectors can look very different over a five-to-10-year period, Murray-Lyon notes. That creates pressure on corporate management teams to direct research and development, capital expenditure and commercial investment towards the areas where they can establish or maintain a leading position.
In medtech, that increasingly means building strength in specific categories rather than pursuing scale for its own sake. Companies need the resources to fund innovation, maintain regulatory compliance and respond to clinicians’ needs, while retaining the manufacturing and commercial capabilities required to compete.
A division that is not a priority for a large diversified group may struggle to secure the investment or management attention it needs. Under a more focused owner, however, the same business could become a core growth platform.
Established products, regulatory approvals and trusted relationships with clinicians can make such assets attractive acquisition targets. The opportunity is to combine those foundations with a more deliberate investment strategy, stronger category expertise or greater scale in a specialist market.
The same logic applies in pharmaceutical services. Murray-Lyon argues that the winning proposition has shifted from scale alone towards specialist expertise and reliable delivery. Customers increasingly want providers that can solve specific problems, meet cost and delivery requirements, and offer deep knowledge of a particular category.
For sellers, the challenge is to identify where a business is no longer the best fit within the parent’s portfolio. For buyers, the opportunity is to recognise capabilities that may be undervalued or underdeveloped under their current ownership.
New owner, more value
It is not simply a question of whether a business is attractive, but whether a different owner can create more value from it.
“It isn’t whether it’s a good business; it’s whether you’re the best owner of it,” says Murray-Lyon.
A strategic buyer may see an opportunity to strengthen an existing product portfolio, fill a gap in its offering or build the category leadership needed to compete more effectively. A specialist company may also be able to give a carved-out business greater commercial focus than a diversified parent.
Private equity sponsors approach the opportunity differently. They may acquire a business as a platform for consolidation, invest in its capabilities and expand its geographic reach. Alternatively, a sponsor that already owns a larger platform may decide that separating a division will unlock more value than retaining it within the group.
Carve-outs can also create opportunities to assemble businesses around complementary products or capabilities. Complexity is not necessarily a deterrent: for a buyer with the right operational expertise and investment plan, it can be a source of value.
The buyer universe is broader than the parent company’s direct competitors. Depending on the business and its degree of independence, a carve-out could be sold to another strategic, a private equity-backed platform or, in some circumstances, pursued through another capital-market route.
The best buyer is not necessarily the one with the greatest theoretical synergies. “It is the one with the clearest ability to realise them,” says Murray-Lyon.
Breaking up is hard to do
Realising a carve-out asset’s potential is not automatic. A business that has spent years inside a larger organisation may rely on shared systems, infrastructure, personnel and commercial arrangements. Its standalone economics and operating requirements may not be immediately clear.
Healthcare adds another layer of complexity. Regulatory compliance, reimbursement, intellectual property, manufacturing requirements and relationships with clinicians or other specialist customers can all influence the viability of a separation.
The issues need to be understood early. But they do not necessarily make a carve-out unattractive -they can instead favour buyers with the expertise and resources to manage the transition.
Murray-Lyon says a successful sale needs a credible view of what the business could become under new ownership. That means understanding not only what the asset looks like today, but also how a buyer could accelerate its development through investment, commercial focus, greater scale or a more suitable operating model.
Building the equity story
Preparation starts with that investment thesis. Sellers need to articulate why the business makes sense as a standalone asset, which growth opportunities have been constrained under current ownership and what a new owner could do differently.
The story must be supported by a realistic assessment of the business’s capabilities, investment requirements and separation needs. A compelling strategic rationale is not enough if buyers cannot understand the operating model or determine what it will take to establish the business independently.
Management is equally important. Ideally, the carved-out business has a team that believes in the standalone proposition and is motivated to deliver it. That team needs to be able to explain the opportunity, lead the transition and demonstrate how the business can succeed outside its former parent.
Where that management team does not exist, a buyer may need an established platform capable of absorbing the asset and providing the leadership and infrastructure needed to realise its potential.
For sellers, this reinforces the importance of beginning preparation before a disposal becomes an immediate priority. A clear equity story, a credible standalone plan and an understanding of the likely buyer universe can help build confidence and support a competitive process.
A longer-term opportunity
The outlook for healthcare carve-outs is supported by continuing pressure on companies to reassess their portfolios, alongside changes in technology, regulation, supply chains and competitive dynamics.
Geopolitical uncertainty and a stronger emphasis on supply-chain resilience may create further opportunities to acquire established operations rather than build new facilities from scratch. At the same time, antitrust requirements can bring specialist portfolios to market as a condition of other transactions.
AI is also prompting companies to reconsider where they can establish a competitive advantage and where resources should be deployed. The implications will vary by subsector, but the broader question remains the same: which businesses are essential to the parent’s future strategy, and which could thrive under different ownership?
Murray-Lyon expects this focus on strategic choice to remain a defining theme. “The real winners aren’t necessarily getting bigger, but they’re getting strategically sharper, more focused,” he says.
For healthcare businesses, that could mean more opportunities to move from a diversified corporate portfolio into ownership better suited to their needs. For sellers, success will depend on demonstrating why a disposal makes strategic sense and securing a return that justifies the decision. For buyers, the prize is an asset whose potential becomes more apparent when it has the right owner, investment and management attention.