To your question of "core tests", I think there are 2 core tests for considering whether to shut down a business line, post M&A:
- Strategic alignment: Does the business line align with the thesis of the M&A?
- ROI / resource allocation vs other businesses: Are there better business opportunities to pursue with the resources allocated to the business line (to Sidi's points on profit / profitability above).
Note: There are also other considerations like legal issues, HR issues, competitor response etc. But I think the above are the 2 table-stakes strategy questions that must be asked in every case.
1. Strategic alignment:
I remember working on a private equity M&A deal where the thesis was to consolidate a whole lot of small dental practices into a national chain, so there can be greater ROI from scale on investments like branding, marketing & sales, IT. The ultimate aim was to get enough scale for an IPO.
Some of these dental practices had supplementary businesses like partnerships with local GPs, optometrists, dental goods suppliers. These businesses were very profitable, but it did not align with the M&A's thesis, and would not have a place in the final national chain. Hence, the decision was to sell these business interests.
2. Resource Allocation vs Other Businesses:
Whenever you have a portfolio of business lines or opportunities to pursue - capital and resource allocation is always a critical question.
The considerations here are about profitability (per Sidi's point) -
- What is the ROI of the business: expected revenue (considering market size, competition etc) + expected investments required
- What is the timing of returns on the business: is this a business where you have to invest deeply and not expect profits for a long time, or is it a cash cow business that is spinning out immediate cash flows
- Also importantly, what other opportunities are you comparing this to: given the investments required, what other opportunities are you giving up by choosing to invest here?
Answering the above 3 questions will then give you a sense of whether you making the best ROI choice in investing or discontinuing the business line.
Once you address the Strategic Alignment + Resource Allocations questions above, that should help you decide what to do. After that, you can decide how to do it (sell off, spin out, discontinue completely, reduce investment, find joint ventures etc)
Hope that is helpful!