Carve out of a Merger: the Opportunity to Transition to the Cloud

After a merger or acquisition, reconfiguring IT systems is one of the first major projects.

Due to complexity and time constraints, many companies struggle with this. At the same time, this is also the perfect moment to bid farewell to legacy systems and make the leap to the cloud. By elevating IT to a higher level, companies can turn a challenge into an opportunity to create value, according to Paul Vos and Peter van Haaften of HSO.

TSA, the Sword of Damocles

IT processes are often centrally managed. This means that a carve-out is complex and time-consuming. To bridge the transition, the parties often establish a Transitional Service Agreement (TSA). This agreement outlines the terms for the use of IT from the former parent company by the separated entity.

HSO typically enters the picture just before the start of the TSA's term, Van Haaften explains. At that moment, there is immediate pressure on the project. "There is a specific period in which you must achieve the separation. They have to pay a significant amount to the parent company each month, and when the TSA expires, they must be gone, as heavy penalties apply at that point. It's a high-pressure process with the TSA hanging over it like a Sword of Damocles."

Network of Partners

In the carve-out process, Van Haaften and Vos encounter many hurdles. Firstly, these relate to technology, involving the relocation or rebuilding of systems and managing all stakeholders. Van Haaften says, "Business applications need to be migrated, and this involves a network of partners who all need to act and be aligned on short notice. We serve as a single point of contact for all practical matters that need to be addressed."

The relationship with the former parent company can also be complicated, according to Vos. "Sometimes, you have to deal with a parent company that is not so willing to cooperate with the divested part. There can be a lot of politics and coordination involved. The pressure and political complexity in such a situation make it very unique. We have become highly skilled at managing these processes on behalf of the client."

Making the Most of Necessity

Often, IT is outdated, causing companies to miss opportunities for data-driven work and faster innovation. However, the necessity arising from the TSA can be turned into an advantage by using this moment to transition to the cloud. "With the cloud, you can leverage innovations that companies like Microsoft embed in their platform. This allows you to introduce innovations in products and services yourself. IT can then truly be an asset," explains Vos.

Value Enhancement

For many companies being sold, the goal is to operate independently and accelerate growth in their target markets. Scalability offered by cloud work environments is also a critical requirement. "When an organization uses outdated systems, it doesn't help with growth prospects. An up-to-date IT environment also contributes to future value enhancement," says Vos.

Business Applications: a Sensitive Issue

In addition to carve-outs, HSO is also involved in situations where two parties merge. This can involve equal mergers or acquisitions. In mergers, the IT infrastructure and business applications used by companies must be integrated into a single environment.

A crucial question is which of the two parties will abandon its own environment, whether or not it's in the cloud, and continue under the environment of the other, Van Haaften explains. "The most challenging aspects are the business applications, such as SAP or Microsoft Dynamics. Generic things like infrastructure, security, and workplaces are like tap water. The sensitive issues are the ERP system or the CRM application. For whatever reason, there is often a lot of emotion attached to these. People have made certain choices in the past and don't want to give them up easily. This is where we often see integration complexity arise."

Acquisitions can be complicated when the smaller party is more mature in terms of IT than the larger party. "Then, you have a situation where they have to accept a much lower level of IT than they had before for several years. This almost always leads to a lot of frustration, discontent, and the departure of various people."

The Complete Transformation

Technology, change management, stakeholder management - there are many aspects involved in IT transformations after a transaction. This requires a lot from a party that guides this, Van Haaften concludes. "It's not just about dealing with the stuff; it's about applying new possibilities and new capabilities. We can execute the entire transformation and provide substantial support to the client. This is a significant reason why we often win these deals."

How HSO Can Help You

HSO is an experienced business transformation partner in the field of advising and executing IT carve-outs and carve-ins. From data center and workplace migrations to migrating application and data landscapes. In addition, HSO can play a role in reporting by making various (potential) data sources visible, linking them, structuring them, and visualizing them in dashboards, giving you a quick and accurate overview of the financial health of various business units.