DealLawyers.com Blog

In the latest annual Carve-Out Survey from AURELIUS, approximately 80% of respondents expected an increase in divestitures of non-core businesses in 2026. According to the announcement:

Refocusing on core operations remains the dominant driver of corporate divestment plans for 2026, cited by 73% of respondents (up slightly from 70% last year). Disposing of unattractive non-core assets is again the second-ranked motivator. By contrast, deleveraging has slipped sharply down the agenda: only 5% cite debt reduction this year, versus 9% last year and 52% two years ago. Decisions to divest may be accelerated by global trade tensions, with 72% of respondents feeling rising tariffs and protectionist policies are affecting corporate decisions to divest non-core businesses in 2026.

With that in mind, BakerHostetler recently shared some practical structuring and drafting tips for carve-outs focused on improving deal certainty. For example, the memo discusses considerations for buyers and sellers when including a “wrong pocket” provision.

Because of these complexities and the often-expedited timelines associated with M&A, another way to address the heightened risk of inadvertently excluding – or wrongfully transferring – a certain asset or liability is to include a “wrong pocket” provision within the purchase agreement. This provision requires a party that has misallocated an asset or a liability from within or outside the target to transfer it to the other party post-closing, typically for no additional consideration.

– Buyers will undoubtedly want a broad provision that will allow them to identify any diligence gaps post-closing and retain the benefit of the business they believed they were buying, especially given that they have less visibility into the target business than does the seller prior to closing.

– Sellers, on the other hand, should push to limit the scope to avoid a situation where a buyer is over-reliant on post-closing diligence and looks to cherry-pick assets from all of the seller’s affiliates.

While a wrongpocket provision should be carefully crafted by the parties to ensure it adequately reflects their intent without undue additional risk, these provisions are no substitute for thorough diligence and precise identification of the transaction perimeter.

The memo also discusses tricky issues associated with carve-out financials, TSAs, transferring employees, technology & data, insurance and restrictive covenants.

– Meredith Ervine