We want to keep our real estate and specialized equipment out of the company sale, but the buyer claims this will cripple the operating business. How do we cleanly structure this carve-out?

Question

Tyler Smith · Accepted Answer

Carving out major assets like real estate or specialized equipment from an operating company sale is an excellent way to retain long-term wealth, but it requires careful structuring to avoid lowering the operating business's valuation. You must prove to the buyer that the operating company can function seamlessly without owning these assets.

Start by calculating the Adjusted Book Value of the operating business. Re-evaluate your balance sheet by removing the book value of the real estate and equipment, along with any associated liabilities. Next, establish a formal, market-rate lease agreement between your real estate holding entity and the operating business.

The buyer's main concern is operational stability and future cash flow predictability. To ease their fears, structure a long-term triple net lease with clear, market-rate renewal options. This ensures the business retains undisturbed access to the facility under predictable financial terms.

You must adjust your historical EBITDA to reflect this new operating reality. Because the business will now pay rent instead of owning the property, you must subtract the new market-rate rent expense from your historical earnings. While this will lower your adjusted EBITDA, it is offset by the fact that you now have a highly valuable, income-producing real estate asset and a stable operating business to sell. This clean separation protects your real estate wealth while giving the buyer a clear, standardized operating structure.