Selling a Division to the People Running It, Fast

The situation

Three weeks before the deal needed to be signed, Femke called with a problem that had no comfortable amount of time attached to it. The Waterloo division she oversaw as an executive of its corporate parent was about to lose a major client relationship, the division's general manager wanted to buy the whole thing before the parent shut it down, and Femke needed to know, quickly, whether that was even something she was allowed to agree to.

The division made specialized equipment for industrial clients and had been part of the parent's portfolio for over a decade, profitable in most years but never quite central to the parent's strategy. Femke had overseen it from the corporate side for four years and had a good working relationship with its general manager, Joost, a steady operator who had run the division's day-to-day business for almost as long as Femke had overseen it. When the parent's board decided the division no longer fit its long-term plans and needed to be off the books within a quarter, Joost was the first person to raise his hand, backed by two other senior managers and an outside investor named Anh who had agreed to help finance the purchase.

On its face, a sale to the people already running the business looked like the cleanest way to keep the division intact and its employees in their jobs. Joost knew the operation better than any outside buyer would, the transition would not require months of onboarding, and the price he proposed, somewhere in the thirty-to-fifty-million-dollar range, was not unreasonable on its face. But Femke had enough instinct for governance to recognize the obvious tension before she agreed to anything: Joost was on both sides of this deal at once, running the business the parent was trying to sell while also negotiating to buy it, with far more visibility into its real financial condition than the parent's own board had.

Femke did not want to sink the deal, and she was not looking for a reason to distrust Joost personally. What she wanted was a way to let a sale that made practical sense for everyone still happen properly, with a price the parent's board could defend later if anyone ever asked how it had been arrived at. That question, more than any doubt about Joost's honesty, was what brought her to us before either side signed anything.

What made this urgent

The urgency was not manufactured. The division employed close to two hundred people, ran active contracts with delivery obligations that could not simply pause, and the parent's board had made clear it wanted the division off the books before the next quarterly reporting period, whether through a sale or a wind-down. A wind-down would have meant severance obligations, contract terminations, and a much worse outcome for the roughly two hundred people whose jobs depended on the division continuing to operate under someone's ownership.

The client relationship at risk of ending compounded the timing problem. That single client accounted for a meaningful share of the division's revenue, and its departure, expected within the month regardless of who owned the division afterward, meant whoever bought it would be buying a business with a materially different revenue picture than its trailing financials showed. Joost, as the person managing that client relationship directly, knew exactly how serious the loss was likely to be well before the parent's board fully appreciated it.

Joost's offer was genuine, and nothing about his conduct suggested bad faith. But he was also the person who ran the division's day-to-day operations, who had access to its internal financial projections, and who had every incentive, whether he acted on it consciously or not, to present the division's prospects as weaker than they actually were while negotiating a purchase price with his own employer. That is the structural problem at the heart of every management buyout: the people best positioned to know what a business is worth are often the same people trying to buy it cheaply. It is not a question of catching anyone in a lie. Even an entirely honest manager, describing the same set of facts, will tend to frame uncertainty in the direction that favours the outcome he wants, and there is rarely a way to tell, from the outside, where ordinary caution ends and self-interested framing begins.

Femke recognized the conflict clearly enough to call us before agreeing to anything, but she also could not afford a process slow enough to let the division's remaining contracts lapse or its client transition go unmanaged while lawyers worked through the fairness questions at a leisurely pace. We were retained to solve both problems, urgency and conflict of interest, at the same time, without letting either one compromise the other. A slower process risked the client transition going unmanaged and other contracts lapsing; a faster process without safeguards risked a deal insiders had effectively negotiated with themselves, which is exactly the kind of arrangement that draws challenges from shareholders or regulators later, however fair it may have actually been.

What we did

1. Recommended an independent committee before any negotiation continued. We advised Femke's board to immediately pause direct negotiations between the parent and Joost's group and appoint a small independent committee, made up of board members with no reporting relationship to Joost and no financial stake in the division, to take over negotiating on the parent's behalf. This addressed the core conflict without requiring a full sale process the timeline could not support.
2. Cut off Joost's access to forward-looking financial models pending independent review. Because Joost had prepared the division's own projections as part of his offer, we had an outside financial advisor, engaged directly by the independent committee rather than by Joost's team, review and where necessary rebuild those projections before they were used to justify the purchase price. The advisor worked from source data the committee controlled, not from Joost's summarized figures, so the review was not simply checking his math.
3. Set a compressed but realistic negotiation timeline instead of an artificially fast one. We pushed back on the board's instinct to close within the three weeks Femke had originally described, explaining that a rushed process without independent verification would create more legal exposure than a few additional weeks of delay. We agreed on a six-week timeline that let the committee do real diligence while still meeting the parent's reporting deadline.
4. Kept the division's operations moving on a separate track from the sale negotiation. We worked with Femke to ensure Joost and his team continued running the division normally throughout the process, including managing the client transition that had triggered the urgency in the first place, rather than treating the buyout negotiation and the operational crisis as the same problem requiring the same people's full attention.
5. Required the outside investor's financing to be verified independently. Anh's role in financing the purchase needed confirmation beyond Joost's assurances, since an unfunded or under-funded offer would have left the parent exposed if the deal fell through late in the process, particularly given how little runway remained before the reporting deadline. We required proof of committed financing before the independent committee would advance the negotiation past a preliminary stage.
6. Documented the committee's independence and process for the board record. Because a management buyout carries an elevated risk of a later fairness challenge from shareholders or other stakeholders, we made sure the committee's composition, its instructions, and its rationale for the final price were documented contemporaneously, not reconstructed afterward if the deal was ever questioned, including minutes of each meeting where the committee weighed the advisor's revised projections against Joost's original numbers.
7. Negotiated final terms through the committee, not through Femke or Joost directly. All substantive price and term discussions in the final weeks ran through the independent committee and its advisors, with Femke informed of progress but deliberately kept out of direct negotiation with Joost, to preserve the separation the process depended on. That distance mattered later: it meant no one could point to a side conversation between the two of them as the real source of the final number.

The outcome

The deal closed within the six-week window, roughly three weeks past Femke's original target but well within the parent's reporting deadline. The final price came in about eight percent below the number Joost's team had originally proposed, once the independent financial advisor's revised projections replaced the more optimistic figures Joost's own team had prepared.

That eight percent gap represented value the parent likely would have lost entirely had the original negotiation proceeded without an independent committee, and it is fair to describe the outcome as contained rather than ideal. An arm's-length sale process, run over several months with multiple potential buyers, might have produced a higher price than even the corrected figure. The parent did not have that kind of time, and accepting a lower but defensible price against a hard deadline was, on balance, the more prudent trade.

The division has continued operating under Joost's ownership since closing, and the client relationship that triggered the original urgency was eventually replaced with new business over the following year. Femke's board avoided the fairness challenge that an undocumented, insider-negotiated sale would have left it exposed to, largely because the independent committee's process was built and recorded before the deal closed, not defended after the fact once someone raised a concern.

Femke herself described the six-week delay, in hindsight, as the cheapest insurance the parent bought during the entire process. Had the board simply let her and Joost finalize terms directly on the original three-week timeline, the price might have been higher on paper, or it might have been lower still, but either way the parent would have had no independent basis to show the number was fair if the sale was ever questioned by its own shareholders or by regulators reviewing the transaction after the fact. The committee's paper trail was the actual asset the process produced, as much as the price itself.

Joost, for his part, said afterward that he understood why the parent had insisted on the independent process, even though it meant negotiating against terms he had not fully controlled. He had gone into the deal confident in his own fairness, and the independent committee gave the final number a credibility his own assurances could not have provided on their own.

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