Stranded Costs
Fixed costs that don't shrink when a business is divested — the single biggest driver of the gap between headline price and true proceeds.
Stranded costs are corporate and shared-service costs that remain with the seller (RemainCo) after a divestiture, even though the revenue and headcount that used to justify them are gone. A regional HR business partner supporting five brands doesn't get 20% cheaper when you sell one of the five — the cost stays, the allocation base shrinks.
They are the single largest reason a headline sale price and the seller's true economic proceeds diverge. Buyers rarely absorb 100% of shared-service cost; the rest lands on RemainCo, usually for 12–36 months until it can be resized.
- Persistence
- How long the cost stays stranded before it can be eliminated or reabsorbed — a 12-month contract termination fee behaves very differently from an 18-month ERP re-platforming.
- Allocation base
- The metric (headcount, revenue, transaction volume) used to spread a shared cost across business units. When the base shrinks, the per-unit cost of what's left rises.
- Reabsorption
- The point where RemainCo has resized — through attrition or vendor renegotiation — enough that the stranded cost disappears from the P&L.
Common mistake: Modeling stranded costs as a flat percentage of the divested unit's revenue. Real stranded costs are driven by contract structure and organizational design, not revenue — a $50M carve-out with a dedicated ERP instance can strand more cost than a $200M carve-out running on shared infrastructure.
In DiligenceDesk, stranded costs are the largest single deduction in the Net Proceeds Bridge — see How the Net Proceeds Bridge Is Calculated.
The Net Proceeds Bridge
The single chart that reconciles what a deal looks like on the term sheet with what a seller actually walks away with.
Transition Service Agreements (TSAs)
The bridge that lets a divested business keep operating on the seller's systems and staff after close — and the biggest source of both risk and hidden cost.
HR / People
Shared HR, payroll, and benefits infrastructure rarely shrinks in step with headcount — and partial-FTE roles are the hardest to cleanly split.