Supporting Complex Carve-Out Transactions with Asset Based Lending

In today’s market, where political turmoil, economic headwinds, elevated interest rates and cautious lending conditions continue to shape dealmaking, carve-out transactions continue to be a prominent and attractive feature of the Private Equity landscape. For investors seeking value, these situations offer compelling opportunities, but they also bring complexity, execution risk, and the need for flexible, responsive financing.

At Shawbrook, our Asset Based Lending (ABL) team has been at the forefront of supporting such transactions, including the carve-out of Ecobat’s UK & Ireland battery distribution business by Splitstone Capital and, more recently, the acquisition of Converge UK by Inspirit Capital. These deals highlight not only the growing relevance of these transitions, but also the critical role ABL can play in enabling them.

The Rise of Carve-Out Opportunities

Corporate carve-outs are often driven by strategic refocusing, balance sheet pressures, or the need for larger organisations to divest non-core divisions. For Private Equity investors, they represent an opportunity to acquire fundamentally strong businesses that may be under optimised within a larger group, giving clear line of sight to value creation.

However, these transactions are rarely straightforward, requiring the separation of systems, people, contracts, and working capital structures and often within tight timelines. Financial visibility can be limited, management capability and motivation can be varied, and standalone performance may differ materially from historical group reporting. Certainty and flexibility of funding are paramount.

Why ABL is well suited to carve-outs

ABL is uniquely positioned to support carve-out transactions because of its ability to lend against the underlying assets of a business in a bespoke and flexible way. Typically, this comprises of receivables, inventory, plant and machinery and real estate but can also look to the cashflows of the business to help with term loans for core acquisition financing. This approach provides several key advantages:

• Flexibility in Structuring
  Unlike more rigid pure cashflow based lending, ABL facilities can be tailored to reflect the specific dynamics of a carve-out. Borrowing bases can be structured to accommodate transitional arrangements, evolving asset profiles, and changing operational footprints.
• Enhanced Liquidity
  Carve-out businesses often require significant working capital investment as they establish themselves as standalone entities. ABL provides scalable funding that grows alongside the business, supporting both day one requirements and future expansion.
• Focus on Asset Quality
  Where historical earnings may be distorted or unclear due to group allocations, ABL’s focus on tangible asset quality provides a more reliable basis for lending. This can be particularly valuable in complex carve-outs where traditional underwriting metrics are less robust or harder to see. Where cashflows are strong, term loans can supplement the asset base to help with core acquisition financing with elements of amortising and bullet structures married to the needs of the business.
• Speed and Certainty of Execution
  With experienced teams and well established processes, ABL lenders can move quickly to assess asset pools and structure facilities, an essential capability in competitive or time sensitive transactions.

Navigating Complexity: The Importance of Expertise

While ABL offers clear advantages, delivering successful outcomes in these situations requires deep expertise and a collaborative approach.

Both the Ecobat (renamed to HJ Enthoven post carve-out) and Converge UK transactions involved multiple stakeholders, including corporate vendors, financial sponsors, advisors, and management teams. Each party brings its own priorities, timelines, and constraints.

In these scenarios, the role of the lender extends beyond simply providing capital. It involves:

• Understanding the deal thesis and aligning the financing structure accordingly
• Working closely with sponsors to anticipate and manage risks associated with separation
• Coordinating with advisors on diligence, legal structuring, and transitional service arrangements
• Engaging with management teams to ensure the facility supports operational realities from day one

At Shawbrook, our ABL team’s experience in complex, event driven transactions allows us to navigate these dynamics effectively. We recognise that no two transactions are the same, and we pride ourselves on delivering bespoke solutions that reflect the nuances of each deal.

Aligning with Private Equity in a Tough Market

Our recent research into the ABL market highlighted a clear trend. In more challenging economic conditions, sponsors are placing greater emphasis on funding partners who can offer flexibility, reliability, certainty of delivery and a genuine understanding of their investment strategies.

Carve-outs, by their nature, require close alignment between lender and sponsor. The ability to adapt to evolving circumstances, whether that’s changes in asset levels, delays in separation processes, or shifts in trading performance, is critical.

In the current environment, where traditional lending appetite may be constrained, ABL continues to stand out as a pragmatic and resilient financing solution. It enables sponsors to pursue opportunities that might otherwise be difficult to fund, while providing the liquidity needed to stabilise and grow newly independent businesses.

Delivering Outcomes That Drive Value

Ultimately, the success of a carve-out transaction depends on the ability to unlock value post acquisition. This often involves operational improvements, strategic repositioning, and investment in growth initiatives.

ABL plays a key role in this journey by providing both day one funding, supporting working capital optimisation and enabling ongoing investment and expansion.

Our work on transactions such as Ecobat (renamed to HJ Enthoven) and Converge UK demonstrates how a well structured ABL facility can underpin success, helping sponsors execute their strategies with confidence.

Looking Ahead

As market conditions continue to evolve, carve-out activity will probably be a key theme in the deal landscape. For lenders, this presents both an opportunity and a challenge: to deliver flexible, tailored solutions while navigating increasing complexity.

For sponsors, the choice of funding partner will be more important than ever.

At Shawbrook, we remain committed to supporting our clients through these transactions. Committed to bringing not only capital, but also the experience, insight, and collaborative approach needed to deliver successful outcomes in even the most complex situations.