Mergers and acquisitions continue to be prominent in today’s public corporate and private equity space. A major challenge for most organizations in the market to acquire or sell a business unit is how to address information technology requirements. Unlike an acquisition in which the entire company is acquired, the acquisition of an individual business unit poses unique challenges, especially when it resides in a well-integrated and efficient technical environment. Rarely can a business unit be delivered to the buying organization on Legal Day 1, instead a Transition Services Agreement (TSA) must be developed between the two organizations that stipulates that the seller will continue to provide the computing environment for a period of time while the buyer executes the integration plan in their own environment.
With an increasing focus on individual privacy and threats from malicious sources to gain access to personal information or corporate proprietary information, the importance of planning for technology isolation during the TSA period has increased exponentially. This isolation is equally important for the organization selling the business unit as it is for the organization acquiring the unit to protect the interests of both parties and is required in regulated industries.
The most important, though often challenging, step to a successful divestiture and impending acquisition of a business unit is having a clear understanding of what the transaction encompasses. Having a defined layout of the application, a detailed inventory of technology assets included in the sale, and the physical locations of employees affected by the sale are critical to developing an isolation strategy. Once the environment you intend to sell has been defined, the next crucial step is to assess the applications and computing environment to gain 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 HR strategy to both physically and logically isolate employees who will be sold to the acquirer. Often, this strategy involves consolidating employees and applications at designated sites, and deploying a dedicated security and network infrastructure. Such isolation will ensure that after Legal Day 1, individuals who became employees of the purchasing organization will no longer have access to the vendor’s network and proprietary information. This task becomes more complex when there are people on secondment who require access to both companies.
An investment is required by the seller to support the insulation of the business unit prior to its sale. The IT component that potentially includes the purchase of new equipment and resource hours can be significant and should be considered before agreeing to the deal. The amount of consolidation and the number of employees affected can reduce costs; however, the seller should 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 can also add significantly to costs and should be considered. A pre-deal Forward Looking Due Diligence® evaluation by an experienced team can uncover additional costs and provide the sales organization with an accurate estimate of the cost involved to achieve isolation, thereby providing the right environment to ensure your business be protected from malicious or malicious attacks. inadvertent damage to a business unit that is no longer part of your company.