The Divestiture Arithmetic

Selling a business unit is supposed to simplify things. Focus the portfolio, unlock value.

The numbers tell a different story.

This company sold a major segment at the end of the most recent financial year. Three years ago, that segment generated $65 million in EBITDA on $90 million of net revenue. By the time it was sold, EBITDA had dropped to $12 million on $30 million of revenue. A 67% revenue decline in three years.

The sale made sense. It was a declining asset in a business that needed to refocus. No argument there.

But look at what the divestiture actually did to the consolidated numbers.

Total group revenue went from $242 million to $168 million. Of that $74 million decline, roughly $60 million was the divested segment's revenue disappearing. The continuing business only declined about $14 million. But the market doesn't see the nuance. It sees a company that's contracted by 30%.

Total assets dropped from $383 million to $224 million. A $159 million reduction, with a significant chunk being goodwill written off (the gap between what was originally paid for acquisitions and what the underlying businesses turned out to be worth). Goodwill went from $205 million to $131 million in one year alone, then down again after the sale.

So what's left? Post-sale, the continuing operations generate $139 million in revenue with 16.5% EBITDA margins and a 98.9% projection confidence score (meaning revenue is highly predictable, almost entirely retainer-based). That's actually a solid core business.

But the market is still pricing in the consolidated decline narrative. The 41% asset reduction, the 35% equity reduction, the headline revenue collapse. All of which are disproportionately driven by the divested segment and its associated writedowns, not by deterioration in the continuing business.

There is a trade-off though. The sold segment might have been declining, but it was still generating $12 million in EBITDA and providing revenue diversification across a different business model. Without it, the remaining business has zero model diversification and sits fully exposed to cyclicality in a single market.

The two sets of numbers that matter in any divestiture decision: the portfolio as-is, and the remaining entity standalone. Then the question is whether the remaining entity has the revenue scale, margin structure, and investment capacity to compete independently.

Simpler isn't automatically better. Sometimes it's just smaller.