Key Takeaways

  • Corporate carve-out leaders sit between two masters: fiduciary duties to the seller and incoming employment with the private equity buyer.
  • Ryan Milligan at ParkerGale notes that target managers naturally become an "agent for the deal," using operational knowledge to push back against unreasonable terms from both sides.
  • Acquired executives help buyers strip out unnecessary Transition Services Agreements (TSAs) while challenging the parent on legacy terms the seller will never monitor.
  • Kevin Gorman argues buyers should share deal priorities and sticking points early, using management to dissolve transaction stalemates.
  • Milligan presents the sponsor's initial operating thesis before close, but warns leadership that facts on the ground will force adjustments within two months.

The Executive Stuck in the Middle

In a corporate carve-out, executives running the target unit live in an odd legal purgatory. The corporate parent pays their bonuses and demands fiduciary discipline until closing. Yet their future compensation and career prospects belong to the sponsor acquiring them. As Kevin Gorman of ParkerGale points out, “the management team that you are acquiring has worked for their parent for however long. But that's coming to an end, but presumably they're incentivized in some way to help the parent and they know a duty to help their parent get the best outcome. But at the same time on day one of closing they're going to be working for us.”

Most deal teams treat divided loyalty as a diligence risk to neutralize. ParkerGale treats it as an operational wedge. Corporate sellers rarely know how the division actually functions below the income statement. Parent legal teams fight over standard allocations and Transition Services Agreements (TSAs). But division executives know which shared systems are essential, which corporate services are useless overhead, and where the parent company is posturing.

Ryan Milligan notes this position pushes managers into an unexpected role: “the management team on the seller side that's at the business that's going to transition, they're really acting as an agent for the middle. They're kind of at some point, they kind of become an agent for the deal.”

When sponsors treat operators as partners during diligence, managers start arbitrating the transaction. Milligan describes the dynamic: “There'll be instances where they're advocating on behalf of the seller saying like, 'Hey buyer, like this doesn't matter. You don't need this. Don't worry about it. We're fine.' That's helpful. There'll be other instances where they're going to the seller and being like, 'Why do you care about this? You don't care about this.'”

Radical Transparency Over Deal Posturing

Standard private equity doctrine holds cards close until final documentation. Gorman rejects that posture with carve-out executives. “The more honest you are with your priorities, what you're looking for, what the sticking points are, the faster and easier some of this stuff gets done with these people who are kind of stuck in between.”

When target leaders know where the sponsor will bend and where it will walk away, they break deadlocks with their corporate parent. They tell corporate development where real deal-breakers sit, cutting weeks off purchase agreement negotiations.

The harder challenge is setting the post-close operating plan without destroying credibility. If a sponsor makes sweeping promises that unravel within 60 days of ownership, executive trust evaporates.

Milligan manages this through upfront calibration: “tell people your best shot at what you think we're going to do post closing, but also let them know that that's our best assessment based on the facts we have. And couple months from now, we might tweak those a little bit and just try to kind of build in that expectation that we're all in this together.”

Why It Matters

Corporate carve-outs remain a primary deal source as corporate conglomerates shed non-core divisions to trim costs. Dealmakers who treat target management as transactional adversaries get trapped in prolonged TSA disputes and flawed handoffs. Viewing unit leaders as deal arbiters shifts leverage away from corporate sellers, letting sponsors underwrite stand-alone costs with precision.