How IT carve-out project complexity influences divestor performance in M&As

Abstract

IT carve-out projects are complex and cost-intensive components of M&A transactions. Existing research sheds little light on the determinants of IT carve-out project complexity and/or its effects on divestor performance. Instead, research has focused on the post-acquisition IT integration project and acquirer performance. This paper presents the first divestor-centric model of IT transactions from the divestor to the acquirer when a Business Unit in a Multi-Business Organization (MBO) is carved out and integrated into another MBO. The model explains how divestor business and IT alignment pre-conditions contribute to increased IT carve-out project complexity. Such complexity increases IT carve-out project time to physical IT separation and creates IT stranded assets, which decrease post-divestment business, IT alignment and divestor performance. The current recommended strategy of adopting transitional service agreements (TSAs) to handle IT carve-out complexity is compared with two new proactive strategies derived from the model. TSA-based strategies restrict the divestor from both decommissioning IT stranded assets and reconfiguring its IT assets to support its new post-divestment business strategy. The two new strategies address IT carve-out complexity without incurring the negative effects from adopting TSAs.

Success Factors in Efficient Mergers & Acquisitions Activities: A Longitudinal Case Study from a Serial Acquirer and Divestor

“…Since IT-related complexity has increased strongly within the last two decades, IT has evolved to a central role within PMI and carve-out projects, consuming roughly half of the total budget [6,7]. Despite the large amounts of money and resources expended on acquisitions and carve-outs, and the abundance of research examining corporate performance during and after a deal, the factors determining the ultimate success of a transaction are still not well understood [8,9]. Against this background, the study at hand takes an acquirer-centric as well as a divestor-centric view by explaining how one of the world's largest engineering companies -referred to as TURBO -has developed IT M&A capabilities to ensure both efficient post-merger IT-PMI and IT carve-out projects.…”

“…Among the services delivered by the players in an ecosystem is consultancy on the implementation of the enter-prise system at the customer organisation which includes solving problems, o ering related and required knowledge, assisting with con guration, and deriving value from the enterprise system package [7]. The implementation consultants performing these services are thus an important part of the ecosystem, and previous research suggests that having competent implementation consultants is among the critical success factors for successful implementation of enterprise systems [8,9].…”