IT Carve-Out Summit 2014
IT as Success Factor in M&A Transactions
In carve-outs and M&A transactions, IT constitutes a decisive cost element and success factor. A strategically well prepared extraction of the part of the enterprise to be spun-off from the existing IT environment has the effect of increasing the value of the entire transaction. In practice, this issue receives too little attention. This aspect brought together today the participants in the “IT Carve-ut Summit”, a joint event of the commercial law firm Noerr, the business and IT consultant SYRACOM and the Federal Association for Mergers & Acquisitions.
“IT is the basis of a business. It is therefore all the more surprising that this issue still hardly ever plays a role in corporate transactions”, summarised co-chairman and Noerr partner Prof. Dr. Peter Bräutigam his observations. The consequence is that legal requirements are only briefly touched on, the implication for IT possibly entirely ignored. As an example, Heiko Krott of SYRACOM referred to software licences: “They are usually held by the parent company. If this issue receives no attention in the course of the transaction, the spun-off part of the company is left practically without IT”. In this situation, the spun-off part has no choice but to accept practically any financial demand of the existing licensor.
“The usual due diligence process at the beginning of a transaction should therefore be supplemented by a careful review of existing IT contracts and licences”, advised Prof. Dr. Kai Lucks of the Federal Association for Mergers & Acquisitions. On this basis, ultimately the parent company can conduct the necessary negotiations with the licensor on the further use of the IT licences and thereby bring about economically acceptable solutions. “It is particularly to be recommended that even before the actual sale and spin-off process the IT licence provisions be reviewed”, added Bräutigam. Possible weaknesses relating to the assignability of the licences can thereby be removed still before the pressure of the transaction arises.
Co-chairman Rolf Knoll of SYRACOM in his lecture dealt with the question of optimal business and IT alignment. “Enterprise Architecture Management contributes to current and future complexes in the entire company being described in a structured and transparent manner. This is visualised with the help of IT construction planning. EAM helps to be able to assess the frequently discussed carve-out readiness and expose deficits”, declared Knoll.
Equally important is the IT support of the parent company for the spun-off part of the company during the transition period. “The ongoing business is thereby intended to be secured until the new company develops its own IT solutions or purchases same”, emphasised Dr. Christopher Schulz of SYRACOM. The support by the parent company is provided for in a “Transition Service Agreement” (TSA). “In these agreements, the extent of the services to be provided must be set out in detail as well as charging modalities and the duration of the services”, explained Noerr IT lawyer Dr. Thomas Thalhofer in his lecture. That is also subject matter of the agreements between the purchaser and the seller.
“In the case of spin-offs and M&A transactions, IT should be treated as one of the central success factors. Licence provisions should be reviewed during or even before the actual transaction and the transition structured in accordance with the Transition Service Agreement”, is how Kai Lucks summarised the discussions.