6 Key Ways to Prepare for a Carve Out

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A carve out acquisition, or when one company purchases a business unit from another company, is not a simple endeavor -- especially when considering the IT components. Carve outs involve moving IT assets from one company to the other, and can be complicated by IT systems that are shared across an organization rather than restricted to use by the business unit being acquired.

As we explored in the last post on this topic, "Planning for a Successful 'Carve Out' Acquisition," these sort of transitions require extensive planning and forethought to navigate complex, competing requirements, with a separate transition environment often created.

Here are six key ways to help your organization prepare.

1. Evaluate What's Required at the Sale Date

Typically, the purchasing company will be excited about joining forces with the purchased business unit and developing its unique identity. A first consideration is often the ability to provide purchasing company email addresses to key business unit individuals in the purchased company's unit. Prior to doing this, it's important to understand where email resides in the selling company, determine which applications are linked to email such as CRM, and define a strategy to sync email through Active Directory (AD) federations services or other identity management system.

The other major business driver is collaboration tools. The purchasing company typically desires the ability to collaborate effectively with its new family members, but needs to understand what tools the selling company has deployed and how they interact with the purchasing company's tools. From a security perspective, it's also important to have visibility into the business unit workstations to ensure your organization is safe and your company's reputation stays intact.

2. Inventory Assets, Shared Sites, IT Resources, Licenses and Applications

One of the key steps in any transition strategy is to work closely with the purchased business unit to gain a solid view of its IT environment, ownership, and support structure. This may be a time-consuming effort, but the better understanding improves chances for success.

  • Assets: The most typical arrangement is to have hardware, software, and licenses owned by the parent company for services they support, with business units owning the remainder...but it's key to identify this at the outset, so decisions can be made about what must be replaced.

  • Shared Sites: During the transition, network connectivity and services will be segregated between individuals within the same building. Because segregation elements such as carrier services and hardware purchase can have long lead times, it's important to understand how many, and which shared sites need to be separated.
  • IT Resources: When moving users and applications to the transition environment, the purchasing company will more than likely have limited to no access to that environment. It may need to rely on the business unit to perform services that it typically doesn't provide. Or it may need to look at outsourcing support that the selling company will allow.
  • Licenses: This effort will vary significantly depending on the selling company's enterprise strategies. If many of the applications are shared by multiple business units, it may be difficult to transfer licenses. This creates two primary issues: One is the cost associated with purchasing licenses, and the other is the level of effort required to migrate the shared applications once the selling company's licenses are no longer available to the new parent company.
  • Applications: It's also important to develop an accurate list of applications and determine which are used only by the business unit and which are shared applications. For those applications not shared, some work will still be required to move the applications and servers to the transition environment's AD domain. For shared applications, a migration strategy must be developed to support the effort. New servers must be stood up in the transition environment, either within the business unit or hosted in the cloud such as AWS and Azure. These applications may include telephony and contact centers.

    Some applications, such as HR and finance, may need to be integrated with other business groups so that the transition of the functional services is aligned with when the applications migrate.

3. Negotiate Appropriate Time in TSA for Migration Effort

Many of the migration activities must be performed in sequence. For example, circuits must be installed at a site before telephony services can be migrated. In addition, the transition environment must be created before applications can be moved out of the selling company. Because all these activities take time, it's important to build a dependency schedule that gives a realistic view of the time it will take to complete the transition. Extending the Transition Services Agreement (TSA) timeframe during the transition can be very costly. In addition, the purchasing company will want to have an expectation of when it can start integrating business units into its organizational structure. Developing a realistic time table will reduce the pressure during a typically stressful time.

4. Develop a Transition Environment Strategy

As outlined above, there's a lot to consider when executing a carve out. By its nature, the transition environment becomes a self-sustaining island, and therefore requires a significant amount of advance planning. Services in the island will include network connectivity, Internet services, DNS, DHCP, AD, ADFS, wireless, remote access, and a number of other components. Before the first work station migrates to the transition environment, decisions must be made about whether services will be provided within the transition environment or by the selling company.

As users migrate to the transition environment, applications will exist in the selling company so an AD trust may need to be established to allow users to access applications independent of where the applications exist, and still have a good user experience.

In addition, the transition environment must be separated from the selling company. This is typically done with the use of firewalls. Firewalls will continue to be locked down as services and applications move to the transition environment. Once all services are moved to the transition environment, the AD trust can be removed, and the firewalls can be fully locked down, eliminating any access by the selling company. Once this step is complete, it's possible to open access between the purchasing company's IT environment and the transition environment and establish an AD trust.

Once an AD trust has been established between the purchasing company and the transition environment, additional steps must be taken to ensure a strong security posture is maintained. To accomplish this, all severe vulnerabilities must be remediated and network access established between the buying company's network and the transition environment.

5. Develop a Realistic Budget

There's a cost associated with establishing a transition environment, as well as with moving shared applications to a company. Understanding which licenses must be purchased and which can be transferred is key. Even if licenses can be transferred, it may still be necessary to purchase support for the licenses. There may also be server, storage, and backup costs, along with professional services fees to support the transition. If the budget is not sufficient to support the transition, a substantial amount of additional stress will be added to an already stressful environment. In addition, it's important to document in the TSA which costs will be carried by each party.

6. Be Prepared to Negotiate with the Selling Company

The purchasing company will naturally be concerned about security and how to seamlessly transition the business unit into the existing organization, while the selling company will be interested in maintaining security posture and minimizing business risks. Even though both parties have a desire to transition the business unit with minimal business disruption, the way this is accomplished is typically different between the two companies. In addition, the IT individuals in the purchased business unit may be concerned about their future. Employing excellent communications skills and people-focused negotiating skills is paramount ensuring a team-oriented atmosphere is in place.

If your company has an acquisition to undergo, it's important to build a strategy and playbook to support the items listed above before the acquisition fun begins. You will experience greater success by either engaging consultants or developing a team focused on acquisitions. In addition, developing a transition environment beforehand will help reduce the risks of migrations and reduce the time it takes to complete the migrations.

Dana Shorter, principal and consultant at Novom Group, also contributed to the writing of this post.

"SCTC Perspectives" is written by members of the Society of Communications Technology Consultants, an international organization of independent information and communications technology professionals serving clients in all business sectors and government worldwide.