Digital technology is having a profound effect on how companies operate, from their business models and ecosystems to how they interact with their supply chains.
As a result, companies are having to undergo rapid change not only to keep up, but also to continue to innovate and stay one step ahead of the competition. Now more than ever, business strategy needs to be aligned to core strengths to take advantage of emerging opportunities.
Mergers and acquisitions offer an effective way to carry out this kind of business transformation, allowing companies to integrate expertise from elsewhere, or divest units to strategically reposition themselves. According to Refinitiv, global M&A activity reached US$227.7 billion in mid-January, the strongest start to the year since 2000.
But such transactions can be complicated and costly, requiring speed, agility and scale to succeed.
The challenge for the buy-side is to make sure the new company is integrated as seamlessly as possible, while for both the buyer and the seller, being able to complete the process swiftly and effectively is key. In addition, investors are looking for an interim platform when they acquire organizations.
So, companies need a a carve-out model that’s proven to work, offering a fast, flexible and successful solution.
Speed and agility
As traditional business models get disrupted, companies need to rethink their long-term strategies. This often takes the form of a restructuring. Selling a unit can also be a prerequisite to obtaining regulatory approvals for a merger.
One key challenge with this approach is time to market; the speed with which a business can split off a company with Day One readiness is critical for many buyers.
TCS’ carve-out methodology defines the end-to-end business processes, sets up a cloud-based solution environment for most of the divested businesses, including the complete stack of infrastructure, IT applications, and enables business process services, all of which can be transferred to the acquirer at closing – within a very short timeline.
In many cases, companies may not have a buyer lined up, or they may have several businesses to divest at once. One of the key aspects of TCS’ offering is that it offers the agility to cope with any one of these scenarios.
“The carve-out solution is the most important component for how we manage the carve-out from end to end perspective,” explains Dr. Kay Mueller-Jones, Managing Partner, Consulting & Services Integration at TCS.
“It is a standardised platform in terms of process and technology, but also a flexible solution, which allows you to carve-out the company at the same time as looking for a potential buyer.
“That buyer could be an investor whose focus is not really on integrating the company into their operations. In this case, the seller might require an intermediate platform which allows them to manage the carve-out but doesn’t have to include operational capability.
“Some businesses prefer a solution that allows them to integrate the business immediately into their operations. In some cases, the process works in reverse, with the buyer moving part of their business onto this platform.”
In addition, regulatory and / or buyer requirements might change during the process, so the carve-out model needs to be able to adapt. There’s also a need to consider the business transformation process – what’s happening on the ground.
“How to manage the change is a very important element of making the carve-out a success,” adds Mueller-Jones.
“The challenge of transformation is not the technology, but the speed of change. Companies must not only fill new positions, but also create training opportunities and shape the change in corporate culture.”
Even without the carve-out, almost every second company sees strong or very strong effects of digitalization on employees and workplaces in Germany. Forty-five percent of companies rely on change management to manage digital transformation. This is an increase of nine percentage points compared to the previous year.
Key benefit of TCS’ solution is the fact that it is hosted on the cloud, ensuring flexible, global and scalable management of the carve-out.
Cloud technology is a key factor that underpins business transformation today. Using the cloud for the carve-out model helps potential buyers integrate the new business into their operations, but also gives valuable breathing space.
Carving out success
Since 2017, TCS’ model helped life sciences giant, Bayer, complete multiple divestitures successfully and on time.
With more than 30 regulatory authorities involved in the transaction, the model had to allow for the fact that regulatory approvals would only be given when the divested businesses were sold, while buyers could only confirm this when the system world had passed to them.
The TCS model allowed Bayer businesses to be divested with a fully functional system landscape and with an external IT and business service outsourcing provider.
The carved-out business units, with more than 4,300 employees at 140 sites in 26 countries, were able to operate largely autonomously as of closing, and are now fully functional on the new set up.
“TCS core strength is to bring the pieces together with a clear understanding of the industry that Bayer operates in,” says Mueller-Jones. “Having this contextual knowledge of the business integrating different services in a seamless manner, as well as the ability to provide the solution on a global scale, was key to making the Bayer carve-outs a success.”