Historically, large healthcare and life sciences corporations have focused deal activity on a breadth of diverse assets. However, the landscape is undergoing significant transformation as businesses shift to rationalize their portfolios and invest in fewer core areas.

This has created fertile ground for corporate and private equity (PE) buyers with strong balance sheets and dry powder, since they are well positioned to acquire and transform life sciences carve-outs.

However, life sciences carve-outs need to be disentangled from the seller’s portfolio, and their complexity requires a specialized approach to diligence and integration.

There are five key steps investors and sellers can take for carve-out success:

1. Assess the strategic fit of target assets
2. Analyze the assets’ financial outlook
3. Understand the market appeal of divested assets
4. Develop a well-thought-out transition plan
5. Review operational risks and develop contingency plans

Before deploying these action items, acquirers need to understand the drivers of portfolio rationalization, the real reason deal values have rebounded, and complexities of operational and financial diligence for carve-outs.

Portfolio Rationalization Drivers

Regulatory and execution considerations have further reinforced the move toward carve-outs. Heightened scrutiny, rising clinical and manufacturing costs, and an increased emphasis on capital efficiency mean that assets with unclear ownership, regulatory accountability or operational dependencies carry real valuation risk. As a result, carve-outs are being seen as opportunities for successful deal execution and value preservation, not just as portfolio clean-up exercises.

Life sciences carve-outs have also become more intentional. Businesses are pursuing more pre-planned separations, spin-offs and carve-outs designed to create clean asset perimeters ahead of a sale or strategic transaction. Strategic positioning is more important than ever as the market matures, and as acquisitions become more targeted, large deal quantities have been replaced by fewer higher-value deals. [1]

What’s Behind Increased Deal Value?

The growth in deal value is due in part to large pharmaceutical companies. They have reentered the market to replenish pipelines and offset upcoming revenue erosion, targeting later-stage and de-risked assets with clearer paths to commercialization—assets that command higher valuations and larger deal sizes. Improving financing conditions, stabilizing macroeconomic uncertainty, increased buyer confidence and competition for high quality assets, especially in oncology, neurology, metabolic disease and advanced platforms, have also helped to drive premiums.

Importantly, higher deal values reflect not just market recovery, but a shift toward fewer, more concentrated bets on assets with tangible near-term impacts on growth and cash flow.

PE funds in particular are eager to secure deals, with 1,029 PE-backed life sciences deals closing globally in 2025.[3] However, the current valuations environment has made PE-to-PE deals difficult to complete, partly because many assets purchased during the 2021-22 timeframe at high valuations have not met growth expectations. As M&A markets recovered and life sciences companies rationalize their portfolios, PE investors now have sellers that are more likely to agree on valuations. PE and other strategic buyers have shown strong appetite for carved-out assets that can perform better as standalone businesses. At the same time, buyers have become more selective, increasingly unwilling to pay for broad platforms that include assets outside their strategic focus. This requires sellers to separate portfolios earlier and more cleanly.

Life sciences carve-outs remain among the most complex transactions in the market because their value is embedded in intellectual property, regulatory standing, data, and scientific continuity rather than standalone operations. As PE funds increasingly participate in life sciences transactions, they will need to understand the unique diligence and carve-out challenges presented by the industry.

Financial Diligence and Carve-out Complexity

A clear understanding of the asset perimeter and operational entanglements is critical to designing an interim operating model, drafting an effective transition services agreement (TSA) and completing thorough due diligence. As such, life sciences carve-out deals involve several interconnected workstreams, including:

• Product perimeter: Defining the product scope is the foundational step, as all downstream operational, regulatory and financial decisions depend on it. While seemingly straightforward, each product must be evaluated individually because portfolio-level decisions often mask meaningful regulatory, supply chain and contractual nuances.
• Regulations and compliance: Buyers often require new licenses to operate carved-out assets. In life sciences, this may involve country-by-country state-by-state licenses, each with its own governing body and timeline. The cost of reregistering products under new ownership in a country with low margins may lead to a decision to exit. Product registrations must also be transferred, reissued or licensed. Understanding these regulatory boundaries is critical to ensuring Day One readiness and compliance.
• Willingness for speed: Regulations can put dealmakers in an 18-month hole just to meet both product and country filing requirements, especially if companies are looking for lower cost manufacturing or changing manufacturing locations. Additionally, separation typically requires a mix of assignments, replications and renegotiations, and contracts across customers, suppliers and third parties must be assessed for assignability, shared usage and change-of-control implications.
• Accounting for underperforming assets: Companies often inherit underperforming services because sellers are focusing on core, high-performing assets. Acquirers must carefully assess the build-back positions that will be required and the quality of the team they will inherit. Companies can learn the hard way that they are lacking the proper skills and staffing experience to move at the speed a sponsor will expect. True four-wall profitability is also critical to understanding the performance of assets. Depending on the required filings and regulations of each country, smaller units may be high cost with low revenue.
• Sales issues: Acquiring a carved-out asset requires an understanding of like-valued products versus add-on products. Life sciences companies need to get the right incentives to salespeople and avoid duplicating sales staff across high- and low-incentive products. Sales staff may also be faced with different markets—such as hospitals, at-home care and others—that they may not be familiar with.
• Research and development pipelines: It takes a long time to get to market, and life sciences businesses need to decide whether they are going to continue all the asset’s research and development spend during the hold period. While they might see some of them come to fruition or create an attractive pipeline of in-process research and development for exit, they may not realize any returns from that spend.
• Market share or growth-market strategy: The decision to go after a steal-share or a growth-market strategy is key. Growth-market costs are based on clinical and research outcomes that create a market, while steal-share strategies rely on finding weaknesses in competitors to take their share of the market.
• Delayering or decorporatizing: Many life sciences carve-outs have excess layers of unnecessary staffing. This results in small reporting ratios, which are often justified as necessary for quality assurance and regulatory compliance. However, these can be maintained even with simplified management layers.

Given these constraints, deal structures often require creative interim operating models and TSAs that allow for an accelerated deal close with economic ownership transfer, while maintaining operations under existing licenses.

Actions to Take for Successful Life Sciences Carve-Outs

Life sciences carve-outs are complex and require diligent planning. There are five key actions acquirers and sellers can take to ensure successful carve-outs and acquisitions:

1. Assess the strategic fit – Ensuring whether the target assets are a part of core areas allows both buyers and sellers to align their portfolios with the business’ strategic focus.
2. Analyze the financial outlook – Understanding the financial outlook of different divisions enables businesses to identify and prioritize ideal divestment candidates. When not done properly, businesses run the risk of carving out assets that have the potential to generate value in the future. This can cause a loss of market share and even lead businesses to reinvest in similar assets.
3. Determine the market appeal – Divested assets need to offer benefits to gain the interest of potential acquirers. If there is no upside for the buyer, then there is no reason for them to acquire the carve-out.
4. Develop a well-thought-out transition plan – TSAs and master service agreements (MSAs) need to be arranged to ensure the divestment is managed efficiently once it has been decided that assets can be fully separated with minimal risk.
5. Review operational risks and develop contingency plans – By understanding all operational risks, businesses can prepare contingency plans to address and minimize potential headwinds.

These steps can, and should, be taken by both sellers and acquirers to ensure the deal is mutually beneficial. Having a thorough understanding of the divested assets minimizes risks on either side of the transaction, increasing the likelihood of success during and after the deal.

How Can Alvarez & Marsal’s Healthcare and Life Sciences Team Help? 

The Healthcare and Life Sciences team within A&M’s Global Transaction Advisory Group creates solutions for clients by providing sophisticated diligence that delivers richer insights and better decision making. The combined expertise and specialized experience of our professionals in growth expansion, process improvement, strategic advisory, operational execution, mergers and acquisitions (M&A) and PE are focused on successful transactions and value creation after the deal.

[1] Life Sciences M&A Activity Signals Strategic Shift Toward Larger, High-Stakes Deals - Risk & Insurance : Risk & Insurance

[2] Pitchbook

[3] Private Equity Healthcare Deals: 2025 in Review