We want to sell our high-margin, AI-driven automation division but keep our legacy consulting business. How do we structure a corporate carve-out and transition service agreement to clean up our balance sheet and sell the subsidiary at a premium multiple?

Question

Tyler Smith · Accepted Answer

Selling a high-margin division while keeping your legacy operations is an excellent way to capture premium valuations, but it requires surgical operational separation. Buyers will discount the division if they believe it cannot survive on its own. First, you must create a clear operational boundary. Use your Accountability Chart to isolate the team members, assets, and intellectual property that belong solely to the automation division. Any shared resources, such as administrative staff or IT infrastructure, must be accounted for. Second, structure a Transition Service Agreement (TSA). This agreement outlines how your legacy consulting business will support the carved-out division post-close, covering services like accounting, hosting, or customer support. The TSA should have a clear expiration date, usually six to twelve months, giving the buyer time to build their own infrastructure without disrupting the business. Third, clean up your balance sheet. You must allocate historical revenues and expenses to generate a division-specific profit and loss statement. A Quality of Earnings audit must verify that these allocations are fair and GAAP-compliant. Finally, use your Level 10 Meeting to direct this transition. Assign specific Rocks to your leadership team to handle the separation of systems, customer contracts, and licensing agreements. When you present a fully functional, independent subsidiary with a clean TSA, you eliminate the operational complexity that would otherwise depress your valuation multiple.