The Separation Cost Model Worksheet
Six cost mechanisms most deal models miss, a buyer/seller exposure map, and a worksheet to size your own transaction against real benchmarks.
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The purchase price is negotiated once. Separation economics move every week.
Separation cost is not one number. It is a portfolio of distinct mechanisms distributed across buyer and seller, one-time and recurring, fixed and execution-dependent. A deal model that treats “separation cost” as a single contingency line is missing the fact that it is actually six separate mechanisms, each with its own driver and its own timeline.
This worksheet works through all six: one-off separation costs, TSA costs including step-up and extension pricing, standalone cost uplift, stranded costs, dis-synergies, and execution slippage. Each is given with its benchmark and its source, and then mapped to whose economics it actually lands on — because separation cost is not one symmetric number shared by both sides. Stranded costs sit with the seller. Standalone uplift sits with the new entity. TSA cost sits primarily with the buyer as the party paying for the service.
The worksheet itself is a structure rather than a formula: mechanism, estimate, basis and source, owner. There is a deliberately illustrative example showing how an original “€12M separation budget” was never really a €12M economic exposure, because each mechanism hits a different P&L, in a different period, owned by a different function. That fragmentation is why the consolidated number goes stale even when every function is tracking its own piece carefully.
Illustrative cost categories
Separation cost is made up of six distinct mechanisms, each landing on a different party: One-off separation costs (Buyer, seller, or negotiated); TSA costs (Buyer, as the paying party); Standalone cost uplift (The new standalone entity); Stranded costs (Seller); Dis-synergies (Both, deal-specific); Execution slippage (Both, by whose delay). They are shown as six equal blocks because their relative magnitude depends entirely on the transaction; the diagram carries no information about the size of any mechanism.
The numbers it works from
- 1–5% of revenue
- one-off separation costs, exceeding 10% for complex or large carve-outs (BCG)
- up to 200% of allocation
- observed cost of replacing centrally allocated services when standing up alone (McKinsey)
- 20–40% of allocation
- stranded costs, as a share of cost previously allocated to the divested business (BD Emerson)
- 51% of sellers
- saw a profitability drop greater than 3.3pp in year one (Deloitte)
What's inside
- Before you start: the purchase price is negotiated once
- Why a single separation contingency line misses six mechanisms with different drivers and timelines.
- Mechanism 1 — One-off separation costs
- Legal and entity setup, IT and data migration, PMO and advisory fees, HR transition, facilities.
- Mechanism 2 — TSA costs
- Not just base service charges: the step-up and extension pricing that activates past base term.
- Mechanism 3 — Standalone cost uplift
- The gap between what a service costs at the parent's scale and what it costs to run independently.
- Mechanism 4 — Stranded costs
- Seller-side costs that remain after the corresponding business leaves.
- Mechanism 5 — Dis-synergies
- The benefit of combination that disappears on separation — harder to quantify, so most likely to be assumed away.
- Mechanism 6 — Execution slippage
- The cost of the plan not holding: extra TSA months at step-up pricing, duplicate running costs, delayed value capture.
- Whose economics are they? Plus the worksheet
- A buyer/seller exposure map per mechanism, and the blank structure to size your own transaction.
Sources cited in the guide: BCG, “The 2021 M&A Report: Mastering the Art of Breaking Up” and “6 Technology Due Diligence Imperatives in Carve-outs”; McKinsey, “Solving the carve-out conundrum”; Deloitte, 2026 Global Divestiture Survey; BD Emerson, TSA and stranded cost analysis.
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