The Carve-Out Playbook
Separating a technology division without destroying its value
What a corporate seller needs to have decided, built, and documented before the first acquirer is approached, written from the sell-side of transactions that closed and the ones that did not.
Decide what you are actually selling
Every carve-out begins with a question that sounds administrative and is not: what, precisely, is inside the box. Products, customer contracts, engineers, source code, brand, domain names, support staff, the data, the licences to third-party components, and the shared services the division consumes without ever seeing an invoice.
Sellers usually answer this in outline and then discover during diligence that the outline was wrong. A contract turns out to be a group-level master agreement that also covers two other divisions. Half the platform team works across three products. The customer-success function is a shared pool. Each discovery re-opens price.
The discipline is to write the perimeter down before anyone is approached, in a document that lists what transfers, what stays, and what is provided under a transition agreement for a defined period at a defined price. Where you cannot decide, decide anyway and note it as an assumption. An explicit assumption a buyer can price is worth far more than an open question a buyer must discount.
A useful test: if the buyer took possession on Monday and your group cut every shared connection at midnight on Sunday, what would break? Everything on that list is either in the perimeter, in the TSA, or a problem you have not solved yet.
Build the standalone financial case
Buyers do not buy your allocated P&L. They buy a business with its own cost base, and they will build their own model of what that cost base is. If your version and theirs differ, theirs wins, because theirs is the one attached to the cheque.
The work has three parts. First, revenue: what the division actually earns from its own customers, stripped of internal transfer pricing and inter-company arrangements. Second, direct cost: the people, infrastructure and vendors that exist solely to serve it. Third, and hardest, the share of group functions it consumes: finance, HR, legal, IT, security and facilities, costed at what a standalone company of that size would actually pay rather than at your group's allocation formula.
That third number is where sellers lose credibility. Understate it and diligence corrects it downward against your EBITDA at the worst possible moment. Model it honestly, disclose the basis, and you convert a re-trade risk into a signal that you know your business.
Expect eight to twelve weeks to do this properly. It is the single highest-return preparation activity available to a corporate seller, and it cannot be compressed by wanting it more.
Fix retention before you fix the story
Net revenue retention is now the strongest single predictor of the multiple a middle-market software asset achieves, with a wider spread in outcomes than sector, growth rate or gross margin. Buyers have learned that retention is the one metric that is very hard to manufacture in the six months before a sale.
Design transition services as a product, not an afterthought
The transition services agreement determines whether the buyer can operate on day one and whether your own organisation spends the next eighteen months servicing a business it no longer owns. Both outcomes are expensive; the second is expensive in a way that never appears in the sale price.
Assemble the data room before you need it
Diligence does not usually kill deals. Delay kills deals, and disorganised data rooms are the most reliable source of delay. Momentum is a real asset in a transaction: a process that moves briskly keeps bidders competing, while a process that stalls gives everyone time to reconsider.
Build the buyer universe deliberately
The buyer who calls you is rarely the buyer who pays most. Inbound approaches come from acquirers who have already worked out that they can buy without competition, which is exactly when a buyer does not need to bid well.
Run the process so competition does the work
Price discovery has one reliable mechanism, and it is competition. The quality of the CIM, the polish of the management presentation and the skill of the negotiator all work at the margin of what a competitive field produces.
Negotiate the terms that outlast the headline
Purchase price is the number everyone remembers. The terms around it determine how much of that number you actually receive and when.
Reading it is the easy part.Knowing where you stand is not.
The readiness assessment scores your division against the five areas this playbook covers. It takes three minutes and shows the result before asking anything of you.
- Written by the desk that runs these processes
- No retainer and no upfront fees on any engagement
- Confidential from the first conversation onward