How IT carve-out project complexity influences divestor performance in M&As

ABSTRACT

IT carve-out projects are complex and cost-intensive components of M&A transactions. Existing research sheds little light on the determinants of IT carve-out project complexity and/or its effects on divestor performance. Instead, research has focused on the post-acquisition IT integration project and acquirer performance. This paper presents the first divestor-centric model of IT transactions from the divestor to the acquirer when a Business Unit in a Multi-Business Organization (MBO) is carved out and integrated into another MBO. The model explains how divestor business and IT alignment pre-conditions contribute to increased IT carve-out project complexity. Such complexity increases IT carve-out project time to physical IT separation and creates IT stranded assets, which decrease post-divestment business, IT alignment and divestor performance. The current recommended strategy of adopting transitional service agreements (TSAs) to handle IT carve-out complexity is compared with two new proactive strategies derived from the model. TSA-based strategies restrict the divestor from both decommissioning IT stranded assets and reconfiguring its IT assets to support its new post-divestment business strategy. The two new strategies address IT carve-out complexity without incurring the negative effects from adopting TSAs.

KEYWORDS:

• Carve-out
• integration
• IT alignment
• divestment
• IT stranded assets
• M&A
• Multi-Business organisations
• theory building

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/0960085X.2022.2085201

Notes

1. A data migration sometimes involves substantial work to clean, reformat and merge data from one source with another. Analytically distinguishing between the IT carve-out and IT integration projects, we do see that the task of data merger falls within the IT integration project. The task of the IT carve-out project is to make the raw data available.

2. In the general project complexity literature, some authors include pacing as a dimension of project complexity. Here, we treat pacing as an emergent property of complexity and time constraints combined.

3. The names of all the companies and BUs in this case have been disguised.

4. A theoretically possible exception to the arguments developed on the impact of structural misalignment is the “under-integration” of a BU relative to the shared corporate IT platform. Analytically, we treat this as an example of pre-emptive disintegration with the intention to divest the under-integrated BU. This situation is further elaborated in relation to Propositions 1d-e and in the Discussion as a proactive approach to avoid TSAs.

5. It is beyond the scope of this conceptual paper to determine the threshold for low vs high IT carve-out complexity.