After M&A projects had been suspended in many cases due to Corona, the Brexit or trade tensions between the USA and China, there is expected to be a significant increase in such ventures in 2021. According to experts, the market for carve-outs in particular is growing. Alas, how can a corporate division be spun off from an existing organization? And how can it be done as quickly and safely as possible? We present the most important success factors for the separation of IT systems.
Companies are once again deciding more frequently to spin off, separate or sell individual business units. Some are separating from business units in order to focus on the actual core business, invest the fresh capital elsewhere or - in view of the pandemic - to maintain their own liquidity. Others are detaching individual subsidiaries from their central SAP ERP system because they want to better adapt business processes to local markets.
Regardless of the reasons, a carve-out proves to be a challenging project. Far-reaching organizational and process-related changes need to be mastered. From an IT perspective, as well, to spin off a part of a company from an existing organization can be quite challenging.
"The timeframes for the operational activities of corporate IT in M&A transactions are short due to confidentiality agreements during deal preparation - and they are getting shorter all the time," knows Frank Hüther, Vice President of Services Central Europe at SNP Schneider-Neureither & Partner. "It's not uncommon for the IPO of two new companies to have already been decided and announced, while the workshops to create the migration concept haven't even been scheduled yet."
With the following tips, you can bring the transformation project to its closing date safely and on schedule:
Carve-out: Knowing and following the rules
When carving out corporate units, the focus lies not only on restructuring existing system landscapes, but also on data - as IT forms the backbone of almost all business activities. Decision-makers ask themselves which data must, can and may be migrated – and which historical data should be archived. During project planning and implementation, there are quite a few guidelines to follow. It is essential to take these rules into account during data selection and migration in order to keep ongoing business operations as trouble-free as possible and to comply with legal requirements and deadlines. Otherwise, there is a risk of high penalties.
Involving IT at an early stage, intensifying IT business alignment
Although the decision to carve out is a matter for the board, the IT department must be involved in the reorganization project at an early stage. After all, the IT experts assume a key function in the carve-out of a business unit and should be involved at the latest in the development of the transformation strategy in order to be able to actively shape the procedure.
"In practice, the IT department is often only involved after the contract has been signed as part of the Transition Service Agreement (TSA)," says Hüther. "It then needs to ensure the transfer of the IT infrastructure and, in particular, the systems and data to the existing corporate IT within a very short timeframe."
In addition, it has been shown that carve-out projects are most successfully completed when the IT team maintains a close exchange with the business departments. The more pronounced the business-IT alignment, the more flexibly the necessary changes to the IT architecture can be implemented and thus friction losses can be avoided.
Entrusting experienced employees with project management
In a carve-out project, it is always important to keep an eye on the dimensions of time, complexity and budget. Decision-makers should therefore place project management in the hands of employees who, in addition to IT and project management experience, have expertise in the special challenges of transformation projects. It is often advisable to release project managers from other tasks so that they can focus on planning the preparation phase as well as the strictly scheduled project duration. At the same time, employees from different areas of the company must be coordinated to act as data suppliers in the division process and collaborate in workstreams with fixed deadlines. One of the tasks of project management is also to inform the entire workforce transparently and continuously about the status of the project from the time the carve-out is announced in order to reduce possible resistance.
Involving external consulting expertise
It is not uncommon to underestimate the costs associated with a separation project - in many cases it only becomes apparent during the course of the project that the increased resource requirements cannot be covered internally. The extent of the necessary technical changes is also often misjudged in advance. "At this point, companies need fast and competent support from an experienced partner such as SNP," says Hüther.
When making a selection, it is essential to ensure that the provider specializes in carve-outs: The ideal partner has comprehensive expertise in the areas of data migration, change management, SAP and project consulting, and uses an innovative methodology and IT solution that allows the entire project to be precisely predicted and planned.
Choosing transformation software and methodology wisely
The choice of the transformation platform that is to enable the data migration proves to be a key success factor for the entire project. "The IT solution should support from the beginning of an M&A project until the SAP systems are transferred to the acquirer's systems. Ideally, software and rule-based analytics in the preparation and due diligence phases will help to estimate the complexity, timing and cost of the SAP migration and any post-merger integration," says Hüther. "With the help of predefined services and packages, planning reliability and risk minimization are achieved."
In this way, complications such as a prolonged IT system downtime can be avoided - after all, they can affect companies severely due to the high costs incurred.
"Based on the information from the analysis, the purchaser's IT department can get "up-to-speed" much faster and more qualified than without automated support," says Hüther. "The IT department is often taken by surprise by a transaction process and must shoulder the additional tasks unexpectedly. Reducing manual effort as well as adding data- and fact-based planning and simulation in combination with an automatically assisted roadmap creation, relieves the burden on all parties involved."
Overall, a fast and secure implementation ensures the agility of the organization – an important prerequisite for positioning the company for the future, especially in times of crisis.
- Mergers, acquisitions, carve-outs: expert tips for data migration
- IT merger: Mastering the integration of a new business unit
- Post-merger integration: Pitfalls that should be avoided
- Carve-out: How to perfectly align your business processes with target markets
- Best practice: How to consolidate complex ERP landscapes