We want to sell our core cash-flowing business but carve out our proprietary AI-powered operations division. How do we structure a subsidiary spin-off or licensing agreement before the LOI to avoid messing up our main business valuation?

Question

Tyler Smith · Accepted Answer

If your business has built a valuable proprietary AI-powered operations system, selling the entire company might actually undervalue that technology. A strategic buyer might only want your customer list, while a financial buyer might not pay for your tech development. In these cases, a carve-out transaction is often the best path to maximize your total value.

To execute a successful carve-out, you must separate your intellectual property from your core operating company before entering formal negotiations. Create a separate subsidiary that owns the proprietary software and licenses it back to your main operating business. This structure allows you to sell the cash-flowing service business to a buyer who wants predictable EBITDA, while you retain ownership of the software platform.

You can then secure a long-term licensing agreement with the new owner, creating an immediate, high-margin recurring revenue stream for your software entity. Use your Accountability Chart to clearly assign team members to the correct entity, ensuring your key developers are not swept into the operating company sale.

This structured division allows you to capture a clean valuation multiple on your service business while keeping your upside in the proprietary technology you worked so hard to build.