Tech Carve-Outs and Asset Deals: Why We Avoid Them — and What to Do When We Can't
Insights from a roundtable moderated by Nicoletta Kouvara at the IBA M&A in the Technology Sector Conference, Barcelona, 12 March 2026
On 12 March 2026, our partner Nicoletta Kouvara moderated a roundtable at the International Bar Association Mergers & Acquisitions in the Technology Sector Conference in Barcelona on the topic of “Navigating Complexities in Tech Carve-Outs and Asset Deals”.
The session brought together M&A and technology lawyers from across the globe for an interactive discussion on one of the more technically demanding areas of technology M&A transactions. This article sets out the key themes and takeaways from that discussion.
The Starting Point: Why Practitioners Prefer Share Deals
When acquiring a technology business, the strong default preference for both buyers and sellers is the share deal. In a share deal, the acquirer steps into the shoes of the existing legal entity and acquires everything within it, such as, contracts, IP, employees, liabilities, and regulatory relationships, as a going concern. The business continues to operate without interruption, third-party consents are generally not required, and the complexity of having to identify and transfer individual assets is avoided entirely.
In the technology sector, this preference is even more pronounced. Tech businesses are built on intangible assets, from code, data, algorithms, customer relationships, and people. These are deeply interconnected and often impossible to cleanly separate. The share deal respects that interconnection.
When Asset Deals Become Unavoidable
Despite the preference for share deals, there are scenarios where an asset deal is either necessary or the only viable structure, such as the following:
Liability ring-fencing / risk isolation: where risks sit at the level of the operating company (such as historic tax exposures, litigation, or regulatory liabilities), which a buyer is not prepared to assume, making an asset deal the only viable way to isolate and exclude those risks.
Regulatory or antitrust requirements: where a regulator mandates divestiture of a specific product line, technology, or customer segment as a condition to approving a broader transaction.
Carve-outs of non-core divisions: where a large technology group wishes to divest a business unit that does not sit within its own legal entity and cannot be easily incorporated separately in advance of a sale.
Distressed situations: where the target is insolvent or in administration, making a share acquisition impractical or unattractive due to liability risk.
IP or product acquisitions: where a buyer is interested in a specific technology, patent portfolio, or product rather than the underlying business as a whole.
Cross-border complexity: where the corporate structure of the target makes a clean share deal in the relevant jurisdiction difficult, and the parties agree that transferring specific assets is more straightforward.
In each of these cases, the asset deal becomes the transaction of necessity rather than choice — and that distinction matters, because it means both parties are typically operating under constraints from the outset.
Defining the Perimeter: What Are We Actually Buying?
The first and often most contested issue in any tech asset deal is perimeter definition, that is, agreeing precisely what is in scope. Unlike a share deal, where the answer is “everything in the entity,” an asset deal requires the parties to build a list: which contracts, which employees, which IP, which data, which systems, which liabilities.
In technology businesses, this is rarely straightforward. Source code and software platforms are often shared across multiple products. Datasets may have been compiled across the whole business. Engineers and product teams may work across several product lines simultaneously. The boundaries of the carved-out business are frequently blurred, and considerable time is spent in due diligence and negotiation simply establishing where one business ends and another begins. In many cases, what is structured as an asset deal in legal terms increasingly resembles a transfer of a functioning business in practice, with corresponding legal and operational implications.
IP and Licensing: Assignment vs. Licence
Intellectual property is typically the most valuable asset being transferred in a tech deal, and its treatment in an asset transaction requires careful structuring. The key question is whether IP is being assigned outright to the buyer or whether the seller is retaining ownership and granting a licence.
Where IP is shared — used both by the business being carved out and by the seller’s retained operations — outright assignment is often impractical. The more common solution is a cross-licensing arrangement, under which the seller assigns or licences specified IP to the buyer while retaining rights to continue using it in its own business. Negotiating the scope, exclusivity, field of use, and duration of such licences is typically one of the more complex aspects of the deal.
Particular care is also required around open source software embedded in the target’s technology stack, which may carry licence obligations that are triggered by a change in ownership or a transfer of the code. Particular care is also required to verify chain of title, especially where IP has been developed by contractors or across group entities.
Data: Separation, Privacy, and Access Rights
Data is the second major area of complexity. In a technology business, customer data, operational data, and product data are often stored in shared systems and cannot simply be “transferred” without a significant separation exercise.
From a legal perspective, data transfers in the context of an asset deal must be assessed against applicable data protection law. Under GDPR, transferring personal data to a new controller requires a lawful basis and, in many cases, updated privacy notices or customer communications. Where data is transferred across borders, additional safeguards may be required. These are not merely technical considerations; they are legal obligations that can affect the timeline and structure of the transaction.
The parties must also agree on access rights: does the seller retain access to historical data after closing? Does the buyer need historical data to operate the business? These questions feed directly into the transitional services arrangements discussed below. In some cases, the practical solution is not a transfer of data at all, but continued access through controlled arrangements.
Transitional Service Agreements: A Necessary Evil
In almost every tech carve-out, the carved-out business cannot stand fully on its own from day one of closing. It may depend on the seller’s IT infrastructure, HR systems, finance platforms, cybersecurity operations, or cloud services. Transitional Service Agreements (TSAs) are the mechanism by which the seller agrees to continue providing these services to the buyer for a defined period post-closing, while the buyer builds or migrates to its own independent capabilities. In tech carve-outs, TSAs often extend beyond back-office support and cover core operational systems, increasing the buyer’s dependency on the seller.
TSAs are widely regarded as one of the most contentious elements of a carve-out transaction. The fundamental tension is structural: the seller has little incentive to prioritise services to a business it has sold, while the buyer is entirely dependent on those services and has no negotiating leverage once the deal has closed. Pricing, service levels, duration, and exit provisions are all heavily negotiated; and disputes over TSA performance are common.
Best practice is to invest significant time pre-signing in mapping the TSA requirements in detail, agreeing pricing on a cost-plus rather than market basis where possible, and building in strong step-down provisions with clear migration milestones to incentivise a clean and timely separation.
Employees: Transfer, Retention, and Know-How
Technology businesses are people businesses. The engineers, product managers, and data scientists who built and operate the carved-out product are often its most valuable asset, and their retention is critical to the success of the transaction.
In an asset deal, employees do not transfer automatically. Depending on the jurisdiction, employment legislation such as TUPE in the UK and equivalent regimes across the EU may apply, requiring the buyer to take on employees on their existing terms and conditions. Where these protections do not apply, or where they are uncertain, the buyer must negotiate individual transfer arrangements, which adds both cost and complexity.
A related issue is the treatment of equity compensation. Engineers and senior technical staff at technology companies frequently hold stock options or equity awards tied to the parent company. These awards do not automatically transfer and must be addressed as part of the deal — whether through cash-out, replacement awards, or retention packages — if the buyer is to successfully retain the talent it is paying to acquire.
A particular risk arises where critical know-how sits with a small number of individuals who may not transfer or may not be retained post-closing.
Third-Party Contracts: Consent and Novation
Unlike a share deal, where contracts remain with the entity and counterparty consent is generally not required, an asset deal requires the transfer of individual contracts from the seller to the buyer. Many commercial contracts contain change of control or anti-assignment provisions that require the counterparty’s consent to any such transfer.
Obtaining consents can be time-consuming and, in some cases, gives counterparties the opportunity to renegotiate terms or exit the contract entirely. Key customer and supplier contracts should be identified early in the process, the consent requirements mapped, and a strategy agreed for approaching counterparties; ideally before rather than after signing.
In practice, the timing and sequencing of consent requests can be as critical as the consent requirement itself.
Conclusion: Preparation is Everything
The IBA roundtable discussion in Barcelona reinforced a theme that practitioners in this space encounter repeatedly: in tech asset deals, preparation is everything. The complexity of these transactions is not inherently unmanageable'; but it does require early, detailed planning, a multidisciplinary team that combines legal, technical, and commercial expertise, and a realistic assessment of the time and cost required to achieve a clean separation.
For buyers, the key discipline is resisting the temptation to treat the asset deal as a simpler transaction than a share deal. It is not. For sellers, the priority is investing in the separation workstream early - ideally before a buyer is even in the room - so that the carved-out business can be presented as a coherent, operable entity rather than a collection of interdependencies.
When structured carefully, tech asset deals can deliver significant value for both parties. The complexity is real; but it is navigable.
The complexity of these transactions lies not only in legal structuring, but in the interaction between legal, technical, and operational realities.