---
name: separation-cost-estimator
description: "Estimates one-time separation costs and recurring dis-synergies for a divestiture or carve-out — covering stranded overhead, IT separation, legal and regulatory, HR restructuring, rebranding, and TSA exit — then models net proceeds after separation drag. Use when estimating carve-out costs, modeling stranded costs and dis-synergies, or building the separation cost case for a divestiture, spin-off, or business unit sale."
argument-hint: "[business-unit] [deal-context]"
allowed-tools: ["Read"]
---

# Separation Cost Estimator

## Purpose
Produce a structured estimate of one-time separation costs and ongoing dis-synergies for a divestiture, then convert it into a net proceeds view so the deal team can see the true economics after separation drag. Replaces back-of-envelope guesses with a defensible, category-by-category cost case that survives board and buyer scrutiny.

## When to Use
Invoke this skill when the user asks to:
- Estimate one-time separation or carve-out costs for a divestiture
- Model stranded overhead left behind after a business unit exits
- Quantify ongoing dis-synergies to the retained business (RemainCo)
- Build the separation cost case for a board or investment committee
- Adjust expected divestiture proceeds for separation and TSA costs
- Compare separation economics across full sale, spin-off, and carve-out structures

## Inputs Required
Before starting, collect:
- **Business unit profile**: What's being separated — revenue, headcount, EBITDA, geographies
- **Deal structure**: Full sale to strategic/PE, spin-off, IPO carve-out, or asset sale
- **Shared services footprint**: Which functions the unit shares with RemainCo (IT, finance, HR, procurement, legal, facilities)
- **Allocated corporate overhead**: Current cost RemainCo allocates to the unit (annual, if known)
- **IT/systems entanglement**: Shared ERP, shared applications, shared data centers, or cleanly separable
- **Expected gross proceeds**: Enterprise value or expected sale price
- **TSA expectation**: Whether a Transition Services Agreement is anticipated and rough duration

If overhead allocation or IT entanglement is unknown, apply benchmark ranges by unit size and flag every assumption explicitly so the model can be tightened later.

## Instructions

### Step 1: Scope the Separation and Set Estimation Basis
Establish the frame before estimating:
- **Perimeter**: Confirm exactly what transfers (people, contracts, systems, IP, entities) vs. what stays.
- **Estimation basis**: Choose top-down (% of revenue benchmarks) for early-stage screening or bottom-up (function-by-function) for a committed deal. State which is used.
- **Benchmark anchor for one-time separation cost**: Typically **2–8% of deal value** for mid-market carve-outs; larger, more entangled separations trend to the high end or beyond. Use this only as a sanity band, not the estimate.
- **Who bears cost**: Separation costs usually fall on the seller (RemainCo); some are shared or reimbursed. Note the assumed split.

### Step 2: Estimate One-Time Separation Costs by Category

Build the one-time cost stack across six standard carve-out categories. For each, give a low–base–high range and the primary cost driver.

**Category A — IT & Systems Separation**
Usually the largest and most underestimated line.
- ERP clone/split or new instance stand-up, application separation, data migration, cybersecurity re-segmentation, cutover.
- Driver: degree of shared ERP/application entanglement.
- Benchmark: often **30–50% of total one-time separation cost**.

**Category B — Legal, Regulatory & Deal Execution**
- Entity carve-out and legal restructuring, contract novation/assignment, regulatory filings, antitrust, IP assignment, external counsel.
- Driver: number of legal entities, jurisdictions, and contracts requiring novation.

**Category C — HR & Organizational Restructuring**
- Severance for redundant roles, retention bonuses for key transfer staff, benefits/payroll separation, employee transfer costs, works-council processes.
- Driver: headcount transferred + redundancies created in RemainCo.

**Category D — Stranded Overhead Remediation**
- Cost to resize RemainCo after losing the unit's contribution to shared cost base — facility exits, contract renegotiation, org right-sizing.
- Driver: how much shared cost was absorbed by the departing unit.

**Category E — Rebranding & Go-to-Market Separation**
- New brand identity (if spin/IPO), signage, packaging, digital assets, domain/collateral, customer communication, sales tooling separation.
- Driver: whether the unit keeps a licensed brand or must stand up a new one.

**Category F — Program & Advisory Costs**
- Separation Management Office (SMO), dedicated PM resources, financial/tax/carve-out advisors, temporary staff backfill.
- Driver: deal complexity and duration; typically **10–15% of the total one-time stack**.

Sum all six into a one-time separation cost range.

### Step 3: Estimate Ongoing Dis-Synergies
Dis-synergies are the recurring margin loss to RemainCo and/or the carved-out unit after separation. Estimate annual run-rate impact:
- **Lost scale in procurement**: Volume discounts erode when combined purchasing splits — quantify as % uplift on affected spend.
- **Stranded fixed overhead**: Corporate functions that cannot be reduced proportionally to revenue lost — the "stub" cost that lingers.
- **Duplicated functions**: Standalone finance, HR, IT, and leadership the unit must now fund independently.
- **Reduced negotiating leverage**: With key suppliers, distributors, or landlords.
Express as an **annual dis-synergy run-rate** and note how much is permanent vs. removable over 12–24 months.

### Step 4: Model the TSA Bridge
If a Transition Services Agreement applies:
- Estimate TSA revenue (to seller) or cost (to buyer) over the service period.
- Flag TSA exit costs — the buyer must eventually stand up its own capability; this cost belongs in the total separation economics.
- Note that lingering TSAs mask true dis-synergies; model the post-TSA steady state, not the TSA-supported interim.

### Step 5: Build the Net Proceeds Model
Convert everything into a single decision view:

```
Gross proceeds (EV / sale price)
  – One-time separation costs (Step 2 total)
  – Present value of ongoing dis-synergies (Step 3, capitalized)
  + Net TSA economics (Step 4)
  = Net divestiture proceeds
```

- Capitalize recurring dis-synergies at a stated multiple or discount rate (e.g., ~6–8x for a permanent EBITDA drag) and disclose the assumption.
- Present base / conservative / optimistic scenarios driven by the ranges from Steps 2–3.

### Step 6: Highlight Cost Levers and Risks
Close with the 3–5 highest-leverage items:
- Which category carries the most estimate uncertainty (usually IT).
- Which dis-synergies are removable with active RemainCo action.
- Where TSA terms materially shift net economics.
- The single largest risk to the proceeds figure.

## Output Format
- **Structure**: Six numbered sections mirroring the steps, with the one-time cost stack presented as a table (Category | Low | Base | High | Primary Driver) and the net proceeds bridge as a waterfall-style summary
- **Length**: 1,000–1,400 words
- **Format**: Structured financial memo — tables for cost estimates and net proceeds, prose for diagnosis and levers
- **Sections**: Scope & basis → One-time cost stack (6 categories) → Ongoing dis-synergies → TSA bridge → Net proceeds model (3 scenarios) → Cost levers & risks
- **Tone**: CFO-grade — quantified, assumption-explicit, conservative by default, board-ready

## Quality Checklist
Before delivering output, verify:
- [ ] All six one-time cost categories (A–F) are estimated, each with low–base–high and a named driver
- [ ] Every estimate not grounded in a provided input is flagged as a benchmark assumption
- [ ] IT/systems separation is treated as a distinct, sized line — not folded into a generic bucket
- [ ] Ongoing dis-synergies are expressed as an annual run-rate and split into permanent vs. removable
- [ ] The net proceeds bridge arithmetically ties from gross proceeds to net across all three scenarios
- [ ] The dis-synergy capitalization multiple/rate is stated explicitly, not hidden

## Notes
- IT separation and stranded overhead are the two most consistently underestimated lines — anchor conservatively and stress-test them.
- Dis-synergies, not one-time costs, most often erode a divestiture case — recurring drag capitalizes into a large proceeds haircut.
- Deal structure changes the cost profile materially: a spin/IPO forces full standalone-capability and rebranding costs a strategic-buyer sale may avoid.
- A generous TSA can make early economics look better than steady state; always model the post-TSA world for the true number.

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