Success Depends on Planning and Coordination Across the Enterprise
By Lori DeVincent, CMAS, M&A Leadership Council Alumna and Director of Information Technology at ResCap Liquidating Trust
Many times the decision to divest a business entity is made in a board room, kept quiet or shared with a limited audience until the close of the deal.
Of course, there are many good reasons to limit those in the know. But if you are responsible for any aspect of IT, there are so many more good reasons for you to be engaged in that decision even before the decision is made.
Technology today is complex and an integral part of business operations. You cannot make good decisions without first understanding your technology landscape and how it can make or break the deal. Planning ahead and preparing your IT for the divestiture is fundamental for success.
Here are four critical questions you need to ask before preparing your IT department for a transition.
1. Is data commingled with other business units?
When planning a divestiture of a business unit, you must consider how tightly integrated the divesting unit is with the rest of your organization. Does the divesting unit share systems and platforms with other parts of your organization The most common challenges are with corporate functions such as finance, accounting, HR and legal. It is critical to do a complete assessment of the business unit and understand where there is overlap. With some advanced planning, you can ensure a smooth transition by carefully separating data and systems prior to the divestiture, making for an easier transition at the close of the deal.
2. How will the divestiture impact the footprint of your current data center?
If the divesting unit is a significant part of your data center footprint, you will need to consider options to ease the transition. How do you manage data center costs after the divestiture? Does the divesting unit run processes on virtual servers commingled with other functions? Does the data center go with the divesting unit? If so, how do you continue to support the remaining business units? A data center migration is a huge undertaking requiring careful planning and enough time to avoid interruptions for both the divesting entity and the remaining business units.
3. Does this business unit share contracts/software licenses with other business units?
It is very common for enterprise software licenses to be shared across business units. Some good examples of shared licenses are Microsoft Exchange, Oracle or SQL, and there are many more. As you plan for a divestiture, it is critical to understand the terms of these contracts; how they are used across the enterprise; and how they will be needed post-divestiture. Will you need to split the licenses? Will the terms of the contract allow you to assign all or part of the contract to the new parent? Are there products you will no longer need, or need more of or less of post-deal close? It is best to review and analyze these contracts prior to the next renewal cycle.
4. What Transition Services Agreements (TSAs) will be required, and for how long?
TSAs are usually required for some period of time following the deal close. The goal is to minimize the quantity and duration of these agreements. They can be very costly from both a dollar perspective and a resource perspective. What support does the parent company need to provide to the purchaser of the divested entity to ensure a successful transition? What resources will be required to support the TSAs, and how does that impact ongoing operations for the parent company? And don't forget that as the parents of the divested entity, you may still need access to systems, processes and resources to maintain operations post-close, so TSAs can go both ways.
Mergers, acquisitions and divestitures will continue to change the face of organizations. The speed at which change occurs is accelerating, especially in the IT space. You need to be asking the right questions. The success of these transactions depends on planning and coordination across the enterprise. And in a divestiture, it is critical to begin preparation well ahead of the deal close and include your IT resources to ensure a smooth transition after the close.
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About the Author
Lori DeVincent is a Certified M&A Specialist® and an alumna of the M&A Leadership Council. The Director of Information Technology for ResCap Liquidating Trust, she has more than 30 years of diverse IT experience. Lori oversaw the processes required for Trust operations in support of a divestiture from a large parent company and the sale of significant business unit platforms and assets to multiple entities. She defined the IT divestiture strategy and built a team to complete the data center migration.