Published on February 4, 2014
Mergers and Acquisitions ERP Carve-out Strategies Jean-Marc Orozco 2014
Introduction What ERP system to use during an M&A transition period ? Defined in a service agreement by seller and buyer before the deal Address concerns on confidentiality, risks, Licenses, Labor High Transition plan impact, high business impact
Why a carved-out system ? Asset purchase case, no time to implement or learn Share purchase, data co-mingled in a corporate ERP instance Prote t “eller’s non divested usiness, data onfidentiality Define when the deal can really happen
Constraints building a carve-out system Time: A prior Closing/Day 1 activity Major Effort while divesting a business Major Cost variance depending on the approach
ERP Transition strategies Carved-out system or not Different carve-out approaches Risk Matrix Conclusion 5
Different transition approach Full carve-out Carved-out copy No carve-out: Operate in place Day One
Full Carve-Out approach Buyer Seller Customizations Legacy System Set up Data loads Blank Carved Out System
Full Carve-Out Advantage ◦ Secure data for both sides ◦ The existing system used by the seller is not impacted ◦ Full functionality for the buyer Disadvantage ◦ All data needs to be loaded ◦ Large and more expensive
Carve-Out Copy approach Buyer Seller Legacy System Copy Carved Out System Purge non relevant data and/or restrict data access
Carved-out Copy Advantage ◦ Less labor and cost than full Carve Out ◦ Easier to setup. No Data loads ◦ Less risk to forget a feature or data set. Disadvantage ◦ Less se urity for the “eller’s data. ◦ Possibility for the buyer to look at past history. ◦ Financial has to be purged/hidden in case of an asset purchase.
Operate in place approach Seller Buyer Buyer Legacy System Asset Non Asset Weekly interface Financials AP,AR,GL
Operate in Place Advantage ◦ Less labor and cost than Carve Out. Disadvantage ◦ The seller has to move out. ◦ Less se urity for the “eller’s Finan ial data ◦ Inventory transactions and inventory transfer ◦ Sales order price is visible to buyer. ◦ The buyer Financials through weekly/daily interfaces ◦ Procurement handled by seller
Day one conversion The buyer moves on day one to its own systems. A huge challenge and risk Transition completing before day 1 High risk of losing people
Summary Risk Operate in Place Effort Day One Carve Out Copy Full Carve Out
Options Risk Matrix Summary Strategy Effort Security Risk Full carve-out Large High Low Carve-out copy Medium Medium Low Operate in place Low Low High* High Very High Day One conversion Large High*: Highly dependent on the processes implemented
Conclusion Cost anywhere from $50K to $x Millions. A high priority task before deal is signed High impact on planning Get IT involved early Quality will make the transition smooth
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