In a divestiture, the buyer needs to understand what IT they’re getting, what it’s worth, and what it will cost to make it work independently. The seller needs to understand what IT they’re keeping and what the separation costs are.
This is the IT carve-out valuation problem. It’s harder than a standard valuation because IT assets are layered — some are shared, some are dedicated, some are critical to operations, and some are legacy junk that’s still running because no one turned it off.
The Three IT Asset Categories in a Divestiture
Category 1: Dedicated IT Assets
Assets used exclusively by the divested entity. These are valued at fair market value — what a buyer would pay for a standalone IT environment with equivalent capability.
Valuation method: Cost approach (reproduction cost new minus depreciation) or market approach (comparable IT environments sold in recent transactions).
The IT DD finding that affects this valuation: The dedicated IT assets are often older than the seller has documented. The server inventory says 3 years old. The actual server hardware says 7 years old. The fair market value drops.
Category 2: Shared IT Assets
Assets used by both the divested entity and the parent company. These need to be allocated — either physically separated (the asset goes to one party or the other) or shared (a new agreement is put in place for continued shared use).
The shared IT assets that create the most conflict in a divestiture:
- The shared Azure AD tenant (identity is shared — who gets the tenant?)
- The shared M365 tenant (email, Teams, SharePoint — who gets the tenant?)
- The shared network infrastructure (WAN links, VPNs — physically separating them is expensive)
- The shared SaaS applications (Salesforce, SAP, Oracle — typically licensed to one legal entity)
The principle: shared assets should be separated at the parent company’s cost, unless the purchase agreement assigns the asset differently. The buyer of the divested entity shouldn’t pay for assets they don’t get to use.
Category 3: IT Separation Costs
These are the costs of creating a standalone IT environment for the divested entity. They are paid by the seller (as part of the separation) or by the buyer (as part of building out the new IT environment).
The separation costs that are systematically underestimated:
- The cost of building a new M365 tenant for the divested entity and migrating all users: 90-180 days, $50K-$150K in external costs plus significant internal IT time
- The cost of establishing new network connectivity for the divested entity (internet, WAN links, VPN): $20K-$80K in setup plus ongoing monthly costs
- The cost of migrating the divested entity’s applications to new infrastructure or new vendors: application-specific, can be $50K-$500K per major application
The IT Valuation Framework for Divestitures
Step 1: IT Asset Inventory
Run ACQI’s discovery scan for the divested entity’s IT environment. The output: a complete inventory of all IT assets, categorized by:
- Dedicated vs. shared
- Owned vs. leased
- Age and condition (depreciation schedule)
- Criticality to operations
Step 2: IT Separation Cost Estimate
For each shared asset, estimate the cost to separate it:
- If the M365 tenant is shared: build a new tenant for the divested entity, migrate all users, decommission the divested entity’s access from the parent’s tenant. Cost: $50K-$150K external, 60-90 days.
- If the network is shared: establish new internet and WAN connectivity for the divested entity. Cost: $20K-$80K setup, ongoing costs at market rate.
Step 3: Standalone IT Operating Model
Define the target IT operating model for the divested entity post-separation:
- Number of IT FTEs (can the divested entity run with its current IT team, or does it need to hire?)
- IT vendor contracts (which contracts transfer to the divested entity, which need to be renegotiated?)
- IT budget (what does the standalone IT environment cost per year?)
Step 4: IT Value Calculation
The value of the divested entity’s IT is the present value of the future IT costs, minus the cost to achieve that standalone state.
If the standalone IT operating model costs $2M/year and requires $1.5M of separation costs, the net present value of the IT burden on the divested entity is higher than the seller is likely acknowledging. This needs to be reflected in the deal price negotiation.
The IT Carve-Out Checklist
Discovery
- Full ACQI discovery scan of the divested entity’s IT estate
- Asset categorization: dedicated, shared, or parent-only
- Age and condition assessment: what’s the actual depreciation schedule vs. the books?
Separation Planning
- For each shared asset: separation cost estimate, timeline, who pays
- For each IT vendor contract: does it transfer to the divested entity? What are the exit costs?
- For each IT employee: which employees transfer to the divested entity?
Valuation Inputs
- IT asset value: reproduction cost new minus depreciation for dedicated assets
- IT separation costs: who pays, timeline, what does the buyer get for that payment?
- IT operating model: standalone IT cost per year, FTE count, vendor contracts
Deal Structure
- IT assets allocated to the divested entity: what is their fair value?
- IT separation costs: who bears the cost? (typically seller, unless purchase agreement assigns differently)
- Ongoing IT costs: what’s the IT run rate for the standalone divested entity?