We want to carve out and sell our high-growth software division while retaining our core consulting business, but buyers are confused by our shared administrative costs. How do we structure a divisional carve-out and establish a transitional services agreement that preserves the valuation of both entities?

Question

Tyler Smith · Accepted Answer

Carving out a division is complex because shared resources like accounting, HR, and office space blur the true operating margins of each entity. If buyers cannot clearly see the standalone financial performance of the software division, they will discount its multiple to account for the risk of hidden overhead.

To protect your valuation, you must create a clean operational boundary before going to market. Redraw your Accountability Chart to create two distinct structures, showing exactly which seats support the software division and which seats support the consulting business. For shared administrative seats, define exactly how much time and cost are allocated to each side.

Next, draft a comprehensive Transition Services Agreement as part of the deal structure. The agreement should outline exactly how your remaining consulting business will provide administrative support to the sold software division post-close, including the specific fees, service levels, and duration of the support. This reassures the buyer of operational continuity without permanently burdening your retained business.

Use your weekly Level 10 Meeting™ to track the separation process as a major corporate Rock. By proving that the software business can operate independently under the transition agreement, you allow buyers to value its high-growth cash flows cleanly, maximizing your overall payout.