Divestiture and Business Carve-out Technology Considerations
Mergers and acquisitions continue to be prominent in today’s public corporate and private equity space. A significant challenge to most organizations that are in the market to acquire or divest a business unit is how to address the Information Technology requirements. Unlike an acquisition whereby the entire company is being acquired, an acquisition of an individual business unit(s) poses unique challenges particularly in the case where it resides in a well-integrated, efficient technical environment. Rarely can a business unit be turned over to the purchasing organization on Legal Day 1, but instead a Transition Services Agreement (TSA) must be developed between the two organizations which stipulates the seller to continue providing the computing environment for a period of time while the buyer executes the plan for integration into their own environment.
With increasing focus on individual privacy, and threats from malicious sources to gain access to individual’s information or corporate proprietary information, the importance of planning technology isolation during the TSA period has increased exponentially. This isolation is equally important to the organization that is selling the business unit as to the organization that is acquiring the unit to protect the interests of both parties and is required in regulated industries.
The most important, yet often challenging, step to a successful divestiture and impending acquisition of a business unit is to have a clear understanding of what encompasses the transaction. It is critical to have the application disposition defined, detailed inventory of the technology assets included sale, and the physical locations of the employees affected by the sale to develop an isolation strategy. Once the environment that is proposed to be sold has been defined, a crucial next step is to assess the applications and computing environment to garner an understanding of their dependencies on the selling organization, and the larger organization’s dependencies on them.
Technology organizations must work closely with real estate management divisions to develop a human resource strategy to isolate both physically and logically those employees that will be sold to the acquirer. Often this strategy involves the consolidation of employees and applications to designated sites, and the implementation of dedicated network and security infrastructure. Such isolation will assure that post-Legal Day 1, the individuals that became employees of the purchasing organization no longer have access to seller’s network and proprietary information. This task becomes more complex when seconded individuals exist which require access to both companies.
Investment by the seller is required to support the isolation of the business unit prior to its being sold. The IT component which potentially includes the purchase of new equipment and resource hours may be significant and should be considered prior to agreement on the deal. The amount of consolidation and number of employee affected may reduce costs, however, the seller needs to expect a minimal amount of activity to perform the isolation regardless of the size of the business unit, particularly if the industry is highly regulated. Aggressive timelines to complete the transaction may also significantly increase costs and need to be considered. A Forward Looking Due Diligence® assessment prior to finalizing the deal by an experienced team can uncover additional costs and provide the selling organization an accurate estimation of the cost involved to achieve the isolation thus providing the appropriate environment to assure their business is protected from malicious or unintentional damage from a business unit no longer part of their company.