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Edward Hansen and Craig Garnett
Edward Hansen and Craig Garnett
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While much discussion centers on how CIOs will fare in mergers and acquisitions, their role in an ancillary event--the divestiture of a business unit--is rarely on the radar. Yet, these transactions are riddled with legal risks that can be costly if not addressed, and in the worst cases, can have serious operational impact.

While much discussion centers on how CIOs will fare in mergers and acquisitions, their role in an ancillary event—the divestiture of a business unit—is rarely on the radar. Yet, these transactions are riddled with legal risks that can be costly if not addressed, and in the worst cases, can have serious operational impact.

When a business unit is sold, the seller must disentangle the consolidated IT operations of that business. This complex process involves not only shutting down IT support for the divested business, but may also include replacing any IT services that the divested business had been performing for the rest of the company. For example, the business being sold may have operated the company IT help desk. Similarly, the buyer will have to plan and implement the necessary IT support after the sale. This time-consuming process requires the coordinated efforts of the buyer and seller, which, together, must plan for the transition long before the projected closing date.

The remainder of the operations will be covered in an IT transition-services agreement (ITTSA). This contract covers the transition period, when specific IT operations of the divested business and its former corporate parent remain interdependent. For example, although IBM is selling its personal-computer business to China's Lenovo Group, Lenovo will likely need IBM to support the PC business' IT needs while Lenovo builds the capacity or arranges for an outsourcer to provide the necessary support itself. The ITTSA obligates the seller to continue providing IT support to the divested business until the buyer can assume those operations itself. Similarly, the contract gives the seller access to the services of the divested business until it can provide them. The terms of the agreement are often flexible to avoid a service interruption.

The ITTSA is seminal in many mergers and acquisitions. Nonetheless, it's often neglected because of its sheer complexity. In effect, it amounts to an outsourcing agreement between two parties that aren't set up to be—and don't want to be—in the outsourcing business. Corporate deal makers would much rather focus on issues pertaining to the overall agreement, such as real estate, trademarks, and service. That's why the CIO—who is usually responsible for implementing the ITTSA—may find it difficult to get adequate attention when it comes to addressing the agreement.

Given this situation, the CIO must take an active, hands-on role in developing and negotiating the ITTSA and managing countless other IT issues raised by the transaction. The challenges range from soft issues, such as managing personnel in an environment in which everyone's future may be insecure, to the hard issues, such as whether to replace a software product that was licensed to the divested business.

As an initial step, the CIO should assemble a separate team for the IT aspects of the corporate transaction. In addition to the CIO and/or other senior IT management, this team should include a dedicated project manager and managers from each major IT-service area that provides support to the divested business. The team should also include finance and accounting experts to analyze the costs associated with the transition and to develop accurate pricing models, as well as legal counsel.


For example, if one of the transition services involves continued processing at a shared data center, all of the licenses for the software running in the data center will have to be reviewed to see whether they permit processing for unaffiliated entities. The business being sold will no longer be an affiliate or subsidiary of the seller after the sale, and requests for consent will be needed for licenses that don't include that right. This effort will have to be extended for the networks, telecommunications, desktop services, and the myriad other IT services involved in supporting the business.

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