IT and Divestitures: 4 Use Cases Every CIO Should Know AboutOctober 15, 2019
Companies have long used divestitures to help rebalance their business portfolios and position themselves for growth. The speed at which rebalancing occurs is accelerating, especially in the IT space. According to Deloitte, divestitures are expected to increase year over year and stay on track to remain a critical component of M&A activity in 2019 and beyond. With varying types of divestitures, many CIOs do not fully understand the unique challenges each may present, the complexity of carve-out and separation issues, and the impact such challenges can have on IT, the business and the overall success of the transaction.
In this article, we will review the different divestiture use cases and how CIOs can evaluate each through the lens of their company’s drivers, and tailor their IT transition strategies to address the unique demands of each.
Divestiture Use Case 1: The Asset Sale
Typically, a straight sale is the first choice for companies looking to divest an asset. By understanding the deal’s value drivers and timelines, CIOs may be able to craft an IT transition strategy that addresses such common divestiture challenges as stranded costs and loss of critical talent, among others, while supporting a speedy transition and preserving value for both parties.
Divestiture Use Case 2: The Spin-off
In a spin-off, a parent company sells one of its business units to investors in an IPO. This divestiture model allows companies to raise cash, while relinquishing full ownership of an asset. CIOs should approach spin-offs conservatively and build the possibility of last-minute cost-cutting into their divestiture plans, which may include an opportunity to jettison aging legacy applications and adopt emerging technologies like infrastructure as a service (IaaS) and software as a service (SaaS).
Divestiture Use Case 3: The Joint Venture
By contributing partial ownership of a business asset into a joint venture with a partner, divesting companies can share risk and split costs, while remaining actively involved in operating the asset. Sometime proving to be particularly challenging, CIOs should first identify redundant processes and capabilities, or unnecessary complexities that have implications for IT, then you can work with each party to address them or build your IT strategy to accommodate them.
Divestiture Use Case 4: The Asset Trade
Companies with complementary capabilities or resources occasionally trade assets which can provide a means for managing risks and costs. Although an infrequently used divestiture model, CIOs, nonetheless, should take the time to understand the functional nuances and true costs of the transaction, and creating plans that leverage existing and complementary IT systems, assets, and processes in each asset.
While each of the divestiture models may be deployed broadly to structure a carve-out, no two divestitures are exactly alike. Each having their own drivers, goals, and costs. Likewise, each presents CIOs with a unique set of challenges and considerations. By understanding the nature of the deal being negotiated, its timelines, and the demands it may place on IT, CIOs can structure their divestiture-related work in ways that minimize transition times and support their company’s strategic objectives.
Binary Tree has supported thousands of enterprise mergers, acquisitions, and divestitures. We’ve worked on many complex divestment transactions around the globe. Our end-to-end enterprise solutions enable organizations to achieve their business and divestment IT goals. To find out more about what we can do for you, get in touch. We look forward to working with you on your next divestiture.