IT Carveout in mid-market PE PortCos
In carveouts - IT separation is the most complex and critical workstream, often defining the critical path for the TSA exit end date. If not managed properly, IT separation delays start affecting all other workstreams, thereby delaying TSA exit, increasing costs, and disrupting NewCo business operations.
In mid-market PE PortCo IT Separation, NewCo IT environment is often built from scratch - either as a recommendation or as a default NewCo target operating model. This still requires good judgement on all the IT entanglements across Application landscape, IT Infrastructure, IT Service management, Cyber Security tools and IT organisation between NewCo and ParentCo
What makes mid-market IT Carveouts Challenging
- In most cases, the IT setup is heavily tied into the seller’s environment, shared applications, networks, and infrastructure are all mixed together
- IT is often the biggest TSA cost (£50k to £1mn per month in a typical mid-market set up) - TSA exit delays increases the TSA costs impacting deal value
- The application landscape is unstructured and complex, anything between 30 to 150 discreet applications, historically un-integrated having multiple data leaks. Apps have dependencies across ERP, Backoffice systems - Finance, CRM, HR - other operational systems used across functions & the Infra set up
- For business operations spread across multi-country and multi-site set up, IT set up needs additional care and co-ordination
- Vendor selection and RFP processes can slow things down if not fast-tracked quickly
- NewCo IT team is often non-existing or newly set up, with little or practically no experiences of being in a complex IT carveout situation before
CIDEK's IT Carveout Approach
Having delivered around 50+ IT separation programs across multiple sectors, CIDEK understand the challenges around IT separation. CIDEK accelerates IT separation through a proven phased approach, aligned to the wider carveout deal lifecycle
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IT Separation Principles & Governance (Pre-Sign or pre Day 0): Buy side IT due diligence is recommended during the pre-Sign (pre Day 0). In this phase, CIDEK reviews the full IT landscape, including applications, networks, devices, cybersecurity, and infrastructure, to get a clear view of the entanglements and set up in the seller’s environment. This helps define the IT separation approach and governance needed early on. It also sets a strong foundation for the IT TSA, bringing clarity on what services will continue, for how long, and at what cost. -
IT Separation Blueprint [Sign (Day 0) to Close (Day 1)]: Day 1 readiness is focused on supporting the seller on logical segregation of NewCo App, Data & Infra, with appropriate cyber security set up. Transition planning on any activity which buyer will need to support to manage NewCo IT is planned and executed with precision.
- Close (Day 1) to TSA Exit (Day 2): IT TSA Exit execution focuses on NewCo's core Systems, IT Infra and Network set up. This includes local site infrastructure, private or public (Azure, AWS, GCP, Oracle) cloud infrastructure, M365 and other collaboration needs for the business. CIDEK recommends driving the IT carveout execution through structured migration waves built around key business operations, functions, front office and back office needs of the business. Factory and site related Apps and Infra set up and migrations need to be managed keep wider factory and site business operations and never in isolation.
How everything comes together
Through the course of IT carveout phases , CIDEK works closely with carveout SMO - provides executive level reporting to CXOs, Operating Partners and Investment teams involved in the Steering Committee. The onus is presenting the true picture of the IT separation program at any time, clearly reflecting the progress made, status, risks, issues, dependencies, and alignment needed for cross-functional and leadership level decision making. IT one-off costs spend on the IT SMO and IT vendors are tracked on a regular basis. IT standalone costs for the NewCo is continuously updated for new IT vendor contracts and system licenses procured, which CIDEK helps to negotiate the best offers from IT vendors and software providers.
CIDEK doubles as the advisor to NewCo IT leadership, or assumes IT leadership role providing pragmatic advises to CXOs in absence of NewCo's IT leadership.
CIDEK's Sample IT Carveout Credentials
CIDEK has led multiple IT carveouts across sectors including Manufacturing, Tech, SaaS, IT Services, Healthcare, Industrial etc. A typcial NewCo has £100mn - £1,000mn revenue, 200 - 2,00 FTE, multi country and often multi-continent operations and IT set up and multi-site needing specific local IT needs. Some of these come with a nominal IT team transferred from ParentCo. More often, a new IT function and IT set up is set up from scratch for the NewCo. IT TSA costs range from £50k - £1mn per month, and IT one-off costs range from £1mn to £20mn, depending on the complexity and scale of the business. CIDEK has led migration of 50 - 800 apps of various complexities, with TSA duration of 6 months to 18 months or even longer.
CIDEK manages the IT workstream end-to-end, from early IT due diligence and IT blueprinting through to IT TSA exit. This included setting up the new infrastructure, migrating ERP and factory systems, handling data migrations, and putting in place a group-standard IT operating model across all sites.
CIDEK is available to support and keen to discuss any IT carveout programs for PE investors and PE backed PortCos.