---
name: divestiture-deal-structure-evaluator
description: "Evaluates divestiture deal structure options — cash, stock, earnouts, retained equity, seller financing — scoring each against the seller's priorities of value, certainty, speed, and tax efficiency, then delivers a weighted recommendation with negotiation guardrails and tax-trap warnings. Use when deciding how to structure consideration for a business unit sale, carve-out, or asset divestiture and trading off headline price against deal certainty and after-tax proceeds."
argument-hint: "[asset-profile] [seller-priorities]"
allowed-tools: ["Read"]
---

# Divestiture Deal Structure Evaluator

## Purpose
Compare every viable consideration structure for a divestiture against the four seller priorities that actually decide the deal — value, certainty, speed, and tax efficiency — and produce a weighted, defensible recommendation that maximizes risk-adjusted after-tax proceeds rather than headline price. Solves the trap where sellers anchor on a high nominal number and then surrender it through earnout slippage, escrow leakage, equity rollover risk, or an inefficient tax structure.

## When to Use
Invoke this skill when the user asks to:
- Choose between cash, stock, earnout, or mixed consideration for a business unit sale
- Decide whether to accept a retained equity stake or seller financing in a divestiture
- Evaluate competing bids that differ in structure, not just price
- Compare an all-cash offer against a higher headline offer with contingent components
- Pressure-test a proposed deal structure before signing an LOI or term sheet
- Quantify the gap between nominal purchase price and risk-adjusted after-tax proceeds

## Inputs Required
Before starting, collect:
- **Asset profile**: What's being sold (business unit, carve-out, asset deal vs. stock deal), revenue, EBITDA, and growth trajectory
- **Expected valuation range**: Headline price band and the implied EBITDA multiple
- **Buyer type**: Strategic acquirer / financial sponsor (PE) / management buyout — and whether public or private
- **Seller priority ranking**: Rank value, certainty, speed, and tax efficiency 1–4 (or assign relative weights)
- **Tax basis & entity structure**: Approximate cost basis in the asset, current holding entity type (C-corp, pass-through), and jurisdiction
- **Strategic constraints**: Need for clean exit vs. willingness to retain equity, appetite for ongoing involvement, any urgent liquidity timeline
- **Structures on the table**: Any specific structures already proposed by buyers or advisors

If the seller priority ranking is missing, default to equal weighting and flag that the recommendation is sensitive to weighting. If tax basis is unknown, model both a low-basis and high-basis scenario.

## Instructions

### Step 1: Establish the Scoring Frame
Define the four evaluation dimensions and how each is measured:
- **Value**: Risk-adjusted total proceeds — nominal consideration discounted by the probability of receiving each component
- **Certainty**: Probability and timing certainty of receiving full value — escrow holdbacks, earnout achievability, buyer credit risk, equity illiquidity
- **Speed**: Time to first dollar and time to full liquidity — close timeline plus any deferred or contingent payout horizon
- **Tax efficiency**: After-tax proceeds — capital gains vs. ordinary income treatment, installment deferral, stock rollover tax deferral, asset vs. stock deal consequences

Apply the seller's priority weights to these four dimensions. If weights weren't given, use 25% each and note the sensitivity.

### Step 2: Evaluate Each Structure Across the Four Dimensions
For each of the structures below, score 1–5 on every dimension, state the reasoning, and name the single largest risk.

**Structure A — All-Cash Consideration**
- Value: Lower headline ceiling; buyers pay a discount for certainty they're providing
- Certainty: Highest — money in hand at close (less escrow holdback)
- Speed: Fastest to full liquidity
- Tax efficiency: Full gain recognized at close; no deferral unless installment elected
- Largest risk: Leaving upside on the table if the asset outperforms post-close

**Structure B — Stock / Equity Consideration (acquirer shares)**
- Value: Higher headline if buyer stock appreciates; exposed to buyer's equity volatility
- Certainty: Lower — value floats with buyer share price and lockup terms
- Speed: Slow to liquidity if shares are restricted or subject to lockup
- Tax efficiency: Potential tax deferral if structured as a tax-free reorganization (Section 368) — major lever
- Largest risk: Concentrated, illiquid exposure to a single buyer's stock

**Structure C — Earnout / Contingent Consideration**
- Value: Bridges valuation gaps; can lift total proceeds materially if targets are hit
- Certainty: Low — earnouts frequently underpay due to disputes, post-close operational control loss, and metric gaming
- Speed: Slowest — payout deferred 1–3 years, often longer
- Tax efficiency: Complex; risk of ordinary income treatment if tied to continued employment
- Largest risk: Loss of operational control over the metric the earnout is measured against; define metrics, accounting standards, and dispute mechanics tightly
- Achievability discount: Apply a haircut to nominal earnout value — typically 30–60% depending on metric controllability and historical earnout realization

**Structure D — Retained Equity Stake (rollover equity)**
- Value: Second bite of the apple — participate in future upside, especially with a PE buyer planning a re-sale
- Certainty: Low for the rolled portion — illiquid, subordinate to sponsor returns, exit-dependent
- Speed: Long horizon — liquidity at the buyer's next exit event (typically 3–7 years)
- Tax efficiency: Rollover portion can defer tax if structured properly (e.g., partnership rollover)
- Largest risk: Minority position with limited governance rights and dilution exposure in subsequent rounds

**Structure E — Seller Financing / Promissory Note**
- Value: Can support a higher headline price by financing the gap
- Certainty: Tied entirely to buyer credit quality — secure with collateral and covenants
- Speed: Deferred — principal paid over note term
- Tax efficiency: Installment sale treatment can spread gain across years and defer tax
- Largest risk: Buyer default; demand security interest, personal guarantees, and acceleration clauses

### Step 3: Build the Weighted Comparison
Construct a scoring matrix:
- Rows: the five structures (plus any blended structures the buyer is considering)
- Columns: Value, Certainty, Speed, Tax Efficiency (each with its weight), and a Weighted Total
- Show the unweighted scores, then the weighted total, then rank

Then model 2–3 blended structures (e.g., 70% cash + 20% earnout + 10% rollover) that better fit the seller's priority profile than any pure structure.

### Step 4: Quantify the Headline-vs-Realized Gap
Take the highest-headline offer and walk it down to risk-adjusted after-tax proceeds:
- Start at nominal consideration
- Subtract escrow/holdback at-risk amount × non-recovery probability
- Apply the earnout achievability discount to contingent components
- Apply an illiquidity/volatility discount to stock or rollover components
- Subtract estimated taxes under the relevant structure
- Land on net realizable, after-tax, present-value proceeds

Contrast this against a clean all-cash alternative to expose whether the higher headline actually wins.

### Step 5: Recommendation and Negotiation Guardrails
- State the recommended structure (or blend) and the weighted rationale — be decisive
- List 4–6 specific term-sheet guardrails for the recommended structure (e.g., earnout metric definitions, escrow cap and release schedule, note collateral, equity governance rights, tax-structuring elections to secure before signing)
- Name the one structure component most likely to erode value in negotiation and how to protect it

## Output Format
- **Structure**: Scoring frame → per-structure evaluation → weighted comparison matrix → headline-vs-realized walk → recommendation with guardrails
- **Length**: 1,000–1,400 words
- **Format**: Structured document with a scoring matrix table and a numbered proceeds walk-down; prose reasoning elsewhere
- **Sections**: Scoring Frame → Structure-by-Structure Evaluation (A–E) → Weighted Comparison Matrix → Headline vs. Risk-Adjusted After-Tax Walk → Recommendation & Negotiation Guardrails
- **Tone**: Corporate development principal — analytical, decisive, alert to where nominal value leaks into nothing

## Quality Checklist
Before delivering output, verify:
- [ ] All five core structures are scored across all four dimensions (20 scores minimum), plus at least one blended structure
- [ ] Scores are weighted by the seller's stated priorities, not equal-weighted unless weights were absent
- [ ] The earnout component carries an explicit achievability discount with a stated percentage and reason
- [ ] The headline-vs-realized walk shows the nominal-to-net-after-tax progression as line items, not a single number
- [ ] The recommendation is decisive and includes 4–6 specific, term-sheet-ready negotiation guardrails
- [ ] Tax treatment is addressed per structure — not deferred to "consult a tax advisor" as the only answer

## Notes
- The most common error in divestitures is optimizing for headline price; the highest nominal offer frequently produces the lowest risk-adjusted after-tax proceeds once earnout slippage and tax inefficiency are priced in
- Earnouts are won or lost in the definitions — controllable metrics, agreed accounting standards, and tight dispute mechanics matter more than the headline earnout amount
- For PE buyers, retained equity is often a genuine second bite; for strategic buyers, it usually isn't — calibrate the rollover recommendation to buyer type
- Stock and rollover deferral can be the single largest tax lever in the deal; flag whether a Section 368 reorganization or partnership rollover is viable before the LOI locks structure
- All tax modeling is directional — recommend confirming structure with deal counsel and tax advisors before signing the term sheet

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## How to use this skill

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