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What is a SAP carve-out? – A Carve-Out Blog Series

Estimated reading time: 5 minutes

Another New Normal: Is your company currently or in the future-facing a divestment? The world has been faced with a long list of “new normals” recently, and divestment is no different for your business. Don’t let a good business decision turn into a messy mix-up of data and information. Executing SAP carve-out smoothly and effectively is critical in the success of a merger or acquisition. M&A’s are driven by the business, with little IT involvement until it is time to deliver; if you have worked in SAP projects before, you know why this may be an issue. Here are a few things you should know to help avoid bumps in the road.

 

‘What is an SAP carve-out?

In the traditional sense of the word, an SAP carve-out is a partial divestiture within a business unit that a company carries out after selling a portion of their business to an external party. A carve-out is not an implementation project, which makes it unique compared to your typical SAP projects. They are also highly confidential, with M&A deals taking place behind closed doors in a boardroom somewhere on the penthouse floor. This is due primarily to avoid compliance risks.

There are many different types of SAP carve-outs; some, as described above, are driven by external forces, while others are internally driven. Technically, they are the same, the only differences being timelines and data-specific requirements. More on this later.

 

Here are a few terms you should know:

Asset Divestiture: Sale of company asset typically done to manage the portfolio and focus on most profitable LoBs

Equity Carve-Out: The creation of a subsidiary via Initial Public Offering where parent company remains majority stakeholder (also known as Subsidiary IPO, Split off IPO)

Spin-Off: Like equity carve-out, but without an IPO. The parent company does not receive any cash as shares of new stock are issued to existing shareholders via a stock dividend.

Business Unit Shutdown: Due to a variety of different factors organisation has decided to shut down a specific LoB for increased profitability or to focus on other value-adding services

Re-Organisation: Restructuring company codes or plant re-allocation. It could be the merging of various conflicting ERP systems into a single global instance.

Company Split: Technical split of an SAP system. It could be in preparation for future divestiture or spin-off.

 

Questions to ask before executing a carve-out:

Before going forward with a carve-out, we must answer some questions first.

What is being carved out? Whether it’s a legal entity, company codes, a plant, or a complex combination of any of these, it is essential to know exactly what is being carved out.

What is the timeline? Three months is the magic number. A project with a shorter timeline is tough to execute but still doable with the right partner and experience. This is also important to understand because timelines are non-negotiable in externally driven carve-out scenarios.

Is it a share or asset deal? This will determine the IT approach for the carve-out. In an asset deal, the buyer is only responsible for future liabilities from the execution of the agreement. In a share deal, the buyer takes on all past, present and future liabilities with serious data quality implications as they will be responsible for future audits.

Who is bearing the IT costs? Sellers want to reduce the cost for obvious reasons, and buyers want to have the best data quality. These are mutually exclusive, so this conversation needs to be prioritised.

Who is the buyer? If you are selling part of your business to a competitor, you will want to make sure only the necessary data is handed over. You do not want any IP to slip through the cracks accidentally. Handling data becomes critical in this scenario.

What does the future landscape look like? Sometimes we don’t know this, so we need to extract data and hand over flat files to the buyer. Sometimes we need to set up a new system that is handed over.

 

Knowing what questions to answer can help identify potential bottlenecks or hurdles throughout the project to be addressed early. Data ownership is a good example; thus, it is different depending on whether this is a share deal or an asset deal.

Follow us for more content! Part II will be out next week: What makes carve-out projects special?

 

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Holger Bock
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cbs Asia Pacific Pte. Ltd. cbs Malaysia Sdn. Bhd.