During a Merger/Acquisition, when a company is evaluating acquiring another one, comes a time during the planning phase, before the acquisition, when both companies have to decide what ERP system to use by the acquired company during the transition.

1. Mergers and Acquisitions
ERP Carve-out Strategies
Jean-Marc Orozco
2014

2. Introduction
What ERP system to use during an M&A transition period ?
Defined in a service agreement by seller and buyer before the deal
Address concerns on confidentiality, risks, Licenses, Labor
High Transition plan impact, high business impact

3. Why a carved-out system ?
Asset purchase case, no time to implement or learn
Share purchase, data co-mingled in a corporate ERP instance
Prote t “eller’s non divested usiness, data onfidentiality
Define when the deal can really happen

4. Constraints building a carve-out system
Time: A prior Closing/Day 1 activity
Major Effort while divesting a business
Major Cost variance depending on the approach

5. ERP Transition strategies
Carved-out system or not
Different carve-out approaches
Risk Matrix
Conclusion
5

6. Different transition approach
Full carve-out
Carved-out copy
No carve-out: Operate in place
Day One

7. Full Carve-Out approach
Buyer
Seller
Customizations
Legacy System
Set up
Data loads
Blank
Carved Out
System

8. Full Carve-Out
Advantage
◦ Secure data for both sides
◦ The existing system used by the seller is not impacted
◦ Full functionality for the buyer
Disadvantage
◦ All data needs to be loaded
◦ Large and more expensive

9. Carve-Out Copy approach
Buyer
Seller
Legacy System
Copy
Carved Out
System
Purge non relevant data
and/or restrict data access

10. Carved-out Copy
Advantage
◦ Less labor and cost than full Carve Out
◦ Easier to setup. No Data loads
◦ Less risk to forget a feature or data set.
Disadvantage
◦ Less se urity for the “eller’s data.
◦ Possibility for the buyer to look at past history.
◦ Financial has to be purged/hidden in case of an asset purchase.

11. Operate in place approach
Seller
Buyer
Buyer
Legacy System
Asset
Non
Asset
Weekly interface
Financials
AP,AR,GL

12. Operate in Place
Advantage
◦ Less labor and cost than Carve Out.
Disadvantage
◦ The seller has to move out.
◦ Less se urity for the “eller’s Finan ial data
◦ Inventory transactions and inventory transfer
◦ Sales order price is visible to buyer.
◦ The buyer Financials through weekly/daily interfaces
◦ Procurement handled by seller

13. Day one conversion
The buyer moves on day one to its own systems.
A huge challenge and risk
Transition completing before day 1
High risk of losing people

14. Summary
Risk
Operate in
Place
Effort
Day One
Carve Out
Copy
Full Carve Out

15. Options Risk Matrix Summary
Strategy
Effort
Security
Risk
Full carve-out
Large
High
Low
Carve-out copy
Medium
Medium
Low
Operate in place
Low
Low
High*
High
Very High
Day One conversion Large
High*: Highly dependent on the processes implemented

16. Conclusion
Cost anywhere from $50K to $x Millions.
A high priority task before deal is signed
High impact on planning
Get IT involved early
Quality will make the transition smooth

17. Questions ?