Digital M&A Series: Part III – Managing IT Infrastructure Separation during divestiture

Divestiture is the separation or disposition of a company into two or more entities. During and after the divestiture, smooth IT disintegration is paramount to unlocking the deal value, optimizing the operational costs and realizing synergies.

In IT disintegration, IT infrastructure separation is one of the pivotal workstreams as all other IT projects are dependent on this. IT infrastructure includes compute, hosting, security, network, and end user devices which supports the processes, applications, information security and end user computing. To ensure a successful divestiture, it is pertinent to plan the IT Infrastructure separation early and envisage all possible risks to mitigate issues and monitor progress.

Why is IT infrastructure separation important during a corporate divestiture?

• IT infrastructure separation during divestiture is a critical dependency for the separation of other IT components and business capabilities.
• The applications separation and transformation projects that are required to support the divestiture are dependent on the infrastructure projects. This dependency must be considered in the planning, and the infrastructure related activities must be started as early as possible to meet the legal & contractual obligations in the divestiture.
• There are key dependencies on the procurement of IT equipment / hardware and software licenses, which may require significant lead time. Procuring the required IT hardware and software is possible only after blueprinting the current and end state infrastructure.
• During the execution phase of these projects multiple vendors, including hardware and software vendors and system integrators, must be coordinated and managed to complete the projects on-schedule and within budget.
• Budgeting and cost control is a significant activity during the project lifecycle, as IT infrastructure separation cost is a major portion of the total separation cost.
• Successful IT infrastructure separation during the divestiture is paramount for unlocking synergies and realizing cost benefits in the long term.
• It also presents an excellent opportunity for infrastructure modernization and digital transformation (e.g., moving to cloud).

A brief overview of the approach for IT infrastructure separation during divestiture

IT infrastructure separation during divestiture can be broadly divided into three phases of strategy, planning and execution as depicted below:

IT infrastructure separation program management

To oversee the infrastructure projects within the scheduled timeline and budget, a centralized IT infrastructure program management office is recommended. The IT infrastructure PMO provides a comprehensive and integrated view of all the IT infrastructure separation projects required to segregate the ParentCo and NewCo, and coordinates efforts to mitigate the risks & issues and interdependencies among various functions/tracks/projects.

The key tracks and insights for success within the infrastructure PMO are as follows:

Application migration:

Based on the current and end-state application blueprint, the major application dispositions are:

1. On-prem to on-prem application migration (compute/hosting/data recovery of on-prem applications)
2. On-prem to cloud migration (compute/hosting/data recovery of cloud applications)
3. Cloud to cloud application migration (compute/hosting/data recovery of cloud applications)

To identify the application dispositions, the guiding principles (e.g., to stay on-prem or to move-to-cloud as much as possible) needs to be ascertained early in the project. This helps in estimating the bill of material for the hardware (servers) to be procured for the hosting data centers and negotiating with cloud vendors for virtual environments. Migrating applications to cloud requires:

• Building the different environments in cloud for applications storage and compute such as those for application development, testing, training, and production, as well as for backup and disaster recovery (DR), and;
• Identifying the dependencies on network, hardware (servers) at different locations and proactively address the risks (such as hardware availability, procurement of licenses, vendor support etc.) associated with the ongoing divestiture projects.

Working closely with experienced on-prem migration specialists and public cloud providers can help immensely.

Network migration:

For network separation during a divestiture, it becomes paramount to meticulously blueprint the current network connectivity (MPLS, internet, P2P, cloud), IP addressing (public, private), management platforms and network equipment. After blueprinting the current state global network and determining the end-state, the major network disposition project identified are typically:

1. Global network separation
2. Local/wireless separation
3. IP addressing separation
4. Hosting connectivity (data center/cloud) expansion
5. Network management and monitoring platform separation

Carefully designing the global network and migration steps for both the end-state and the transition will not only support the ParentCo and NewCo in the future but can also provide enhanced network connectivity for high volume data migration during the interim state, which can be critical to success of the transition.

Usually, network projects during the divestiture are long running and mission critical. To avoid exorbitant TSA costs in the future it is important to design the end state network in advance and tie up with experienced third-party network connectivity providers and equipment suppliers. It is important to identify and design the network for co-existence and transition phases before snapping the network of two companies.

EUC (End User Computing) Migration:

Inventorying the end user computing devices (such as laptops, desktop, mobiles etc.), operating systems, licenses and its management applications before the divestiture helps in identifying their distribution across the two companies. NOTE: accuracy of this information is critical to a smooth user migration between entities.  Segregating the employees is often based on the authentication and authorization (i.e., user credentials) by their domain in the active directory. The key projects in this track are:

1. Active directory and identity migration
2. E-mail/ O365 separation
3. EUC device’s disposition

Identity migration is central to end user migration, application access and information security. Working closely with the AD provider (typically Microsoft) and HR (human resources) for identifying the right domain of each employee in advance becomes key pre-requisite for success of other projects such as application separation, end user devices and collaboration platforms.

Other Infrastructure platform separation:

Identifying the technology stack, agents, tools across the geography during the blueprint helps in estimating and planning the separation of the collaboration and security platforms. It’s also important to identify the user distribution across domains and sites. The key projects in this track are:

1. Security applications separation
2. Telephony systems/voice infra/ collaboration platform separation
3. Structure and unstructured data separation
4. Virtual desktop platform separation

Divestiture provides a good opportunity to refresh/upgrade the legacy infrastructure both hardware and applications to realize cost benefits in the long term and provide a superior employee experience.

Contracts separation and TSAs (transition services agreement) management

To ensure the business continuity and adhere to the legal obligations, the separating entities i.e., RemainCo and SpinCo must identify the IT contracts and licenses that needs to be separated. Companies need to procure the IT Infrastructure licenses based on their individual user base and utility in the future.

TSAs needs to be signed between the RemainCo and SpinCo for the IT infrastructure services that are not separated before the operational Day 1 to ensure smooth operations and de-risking the transition. Both the separating entities must define the scope and timelines of the TSAs in advance and must cooperate in executing the same. It’s advised to exit the TSAs as early as possible to minimize the separation cost and realize synergies & optimization costs. Establishing a centralized TSA governance during the divestiture plays an important role in executing, as well as exiting the TSAs.

Conclusion

Effectively executing the IT infrastructure separation during a divestiture in a fixed timeline is critical.  IT infrastructure separation management is critical not only for application separation / transformation projects, to ensure business continuity, and meet legal & contractual obligations, but also for the employee experience, and the success of the overall transition phase. Hence, IT infrastructure projects require meticulous planning and leadership oversight in order to mitigate risks and successfully accomplish the divestiture goals.

Read more from this series:

Part 1: Research and development considerations during mergers and acquisitions

Part 2: Integrating smart manufacturing and digital supply chain

Part 4: Digital playbook for accelerated integration