One of our legacy product lines accounts for half of our net profit but is slowly declining while our new divisions are growing rapidly. How do we prevent a buyer from blending our multiple down based on this legacy concentration?

Question

Tyler Smith · Accepted Answer

Buyers will naturally want to apply a single, low multiple to your entire business if they see a declining legacy division dragging down your growth story. You must force them to value the business in parts, using a sum-of-the-parts valuation model. Isolate the financials of your rapidly growing divisions. Show how your resources, people, and leadership are allocated. Use your Accountability Chart to prove that the growth divisions have dedicated teams and are not starved of attention by the legacy product line. Present a clear transition plan in your V/TO showing how you are systematically shifting your focus from the legacy division to the high-growth areas. If you can demonstrate that the cash flow from the declining division is actively funding the scaling of your high-multiple divisions, the legacy business becomes an asset rather than a liability. It is a cash cow funding your future. Provide the buyer with clean, segmented Quality of Earnings data that shows the high gross margins and customer acquisition efficiency of the new units. By demonstrating that these divisions operate almost as independent entities, you can negotiate a high growth multiple for the new business lines and a lower, cash-flowing multiple for the legacy business, protecting your overall transaction value.