IT Considerations for Reverse Mergers

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Organizations tend to grow their customers, markets and products through some combination of organic efforts and acquisitions.  Sometimes the rates and scale of the growth meets expectations, other times they don’t.  When the full value from investments can’t be realized, some organizations have turned to reverse mergers for parts of their business they believe to be very valuable, but where growth is stunted for some reason.  Cadbury’s reverse merger of the Americas beverages businesses is one example.  Maybe the operational synergy isn’t there or maybe the product sets are just too dis-similar.

Diamond has had the opportunity to help companies across many industries plan for the divestiture (or reverse merger or separation) of a business unity, set of products or book of business.  In preparation for another such conversation with a travel company, I jotted down a few of the lessons we have learned along the way.  My perspective has been on the separation of the IT capability, including the people, processes and technologies, but there are also many similar lessons across the business functions.

IT Separation Lessons from Reverse Mergers

  1. Target state organization design (names, structure, job titles, etc. for both target organizations) and associated communication planning took A LOT more time than expected. Make sure to allocate enough of the right people to this.
  2. In some conditions it is better to sequence the reverse merger before the separation date, in other situations it will be more efficient to separate after the deal is consummated. The level of integration between the two businesses and future strategic direction should all play a part in this decision.
  3. If you decide to separate after the sale then it is crucial to have a suitable transitional service agreement (TSA) in place. There is no right answer for how formal and specific a TSA should be,  it depends on the complexity of the reverse merger and relationship between the two companies.
  4. In one case, we thought that using a 3rd party to host the infrastructure for the smaller of the separated organizations would speed the transition but it just put more dependencies in the critical path. Be careful about this - maybe think about a 2 step transition - internal then external.
  5. In order to do the detailed SW/HW transition planning you have to know what you have and which organization (or both) will retain them. There is a significant asset inventory activity to do this.
  6. Don’t forget that all hardware, software and services licenses need to be reviewed - some will need to be replicated, some canceled, and many updated
  7. End user computing service (desktop, laptop, blackberry, etc) is something you don’t want disrupted. For some reason, it took one client for ever to figure out how to design/redesign the Microsoft Exchange structures and associated security for the separated companies. This is something very visible that could give the separation a black eye with execs if not managed well.
  8. Review the economics of your IT organization after the reverse merger is complete as some previous decisions (e.g. outsourcing IT support) might not make sense for the new company structures.

I would love to hear about your experiences related to separating functions or entire businesses.  Thanks to my colleague Ben Downe for helping me with this post.

cc licensed flickr photo shared by Hansol

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  • Mary LP

    Chris, thank you for sharing! It has been a few years since I’ve “enjoyed” a divestiture. I still remember the pain. They are so much harder than an integration. The lessons shared make so much sense - especially 5 and 6. This is an area often underestimated.