Stranded costs

When a division leaves, the overhead that supported it does not leave with it. The head office, the shared service centre, the software licences and the group insurance programme are all still there the morning after completion. Whatever the parent cannot genuinely remove is stranded on what remains.

The size of the problem is the difference between what was charged to the division and what can actually be taken out. Some central cost is genuinely variable with the number of businesses served and some is not, and the parent's ability to shed the second kind depends on contract terms, redundancy processes and how quickly it can resize functions that were built for a larger group.

Stranded cost is permanent, so it should be capitalised like any other permanent change in profit. That makes it a real offset against the headline price, and it is why a disposal that looks like a good sale on the multiple achieved can be a poor one once the effect on the retained business is counted.

It also explains a negotiating dynamic that otherwise looks odd. A seller wants a long, generously priced transitional services agreement, not only for the revenue but because it lets the group unwind its overhead in an orderly sequence rather than all at once on completion day. The buyer wants the opposite. Both sides are arguing about the same allocated cost from opposite ends.