Question: Preparing for divestiture of a subsidiary

We are a CPA firm offering accounting, consulting and advisory services across several verticals.

A couple years back we added a bookkeeping arm to our business, and we now have a deeply embedded team of 20 odd employees serving some our existing customers as bookkeepers.

In retrospect, we haven't really realized the benefits we were expecting, and are now considering divesting this practice.

Are there any steps you recommend we take internally first, to prepare for the divestiture?

4 Expert Insights

Great question, not a lot of information to make a through assessment.
I'm not big on giving advice without thoroughly understanding the problem.
You know, garbage in, garbage out!

- How many years back did you add this arm?
- What revenue were you expecting?
- What revenue did you actually realize?
- What percentage of your overall business is this practice?
- Have you had conversation with other firms about acquiring this practice yet?
- Do the employees know their business is a disappointment?
- Have you analyzed the impact of possibly losing the accounting business with some of these clients? Your comment "deeply embedded team" gives me some concerns.
- Does the practice add value in other ways other than revenue (good will, referral sources, etc).

I support what Henry said to you. What I would like to add is that before you divest that business you make sure you did everything that needs to be done so the business can succeed. Among other things I would expect that you will communicate with employees about your assessment of the performance of the practice and engage them in a process of finding solutions so the practice can be successful.
If you try to divest this practice, anybody who will be interested in buying this service from you will in his/her due diligence find out what was going on and most likely you will not be able to find somebody that would pay for an under performing business.

Value is in the eyes of the beholder, be that your company or a buyer. The value is eventually determined by leadership. Person that can turn the practice into an efficient, customer centric, customer attracting, profitable practice. I would estimate that a good leader, who will manage the new entity, will solve all pending issues.

Good Luck!

Having divested of businesses before and done my fair share of acquisitions what you want is to have as a clear a set of numbers as possible. Buying branches of a single legal entity often muddies the waters so I advise spinning off the business into a subsidiary before selling it. This also allows you to create a data room that is separate from your on-going business thus maintaining client confidentiality.

Creating a separate legal entity is so cheap in America, there is no reason not to do it.

Also, you can put in place nice contracts between the two entities to cover any shared clients. This allows you to insure a business pipeline for both companies. A value in and of itself.