Private Equity: Effectively Manage Divestitures with a Technology Enabled Transition

Transitions go beyond simply inheriting or acquiring titles, assets, shares, or property; many times, it is the act of one company handing over any control, responsibility, and accountability to another company. Instead of driving the car, you are now riding in the back seat, allowing a new business or brand to steer a new path to financial success and industry growth and development.

The journey is not over yet, however. As the newly merged company grows and develops, it must also put in place preparations for the future exit strategy or succession plan in ensuring its successful acquisition and transition to new hands.

As previously mentioned on our blog, a successful merger and acquisition requires a business to conduct buy-side digital due diligence and work to perform a fit-gap analysis to determine areas that need for a broader integration management strategy. Once this information is sourced, analyzed, and utilized to complete a successful transaction, the transition phase can begin, which is arguably the most complex and crucial stage of the mergers and acquisitions process.

The Unique Life Cycle of the Divestiture and Transition Process

Let us once again consider the process of purchasing a home we discussed in our due diligence article. After successfully conducting due diligence, preparing an offer, and entering negotiations, the property has transferred into your hands. With the information you have collected from speaking with the appropriate experts and identifying the areas of the home that present “gaps,” work has been completed to ensure that it “fits” the requirements of your family. What is left is a fully functioning home that serves your specific needs and allows your family to grow and prosper. Yet, changing markets and the complexities of life now leave cause for consideration of selling the property and purchasing a new one. You are now faced with the knowledge that the process must begin again for both yourself and future buyers, conduct due diligence, identify fits and gaps, and complete the necessary work for a sell-side transaction.

Having an exit strategy or succession plan is the natural next step in ensuring that potential buyers have the information they need to purchase the home, including all upgrades, changes and so forth that have been completed. When they can feel confident in their purchase, you can then work to find a property you can be comfortable with.

Marrying Exit Plans with Succession Teams

Succession planning in the private equity space plays two key roles. Not only does it allow for a company to have a comprehensive plan in place to manage the future of the company in the event of the unexpected, but it assists all parties involved in both the divestiture and acquisition process where the current owners (sell-side) work to help a company who is interested in acquiring (buy-side) the business. Transition plans detail everything from technology and operations to the details of all contracts, leases and licenses, and the dissemination of finances for staff, shareholders, executives and so forth. Without a properly formatted transition plan in place, a company’s management team will be required to make critical decisions only using the information available- delaying the process of conducting due diligence, performing a fit-gap analysis and successfully acquiring the business.

An integration team is typically comprised of individuals who have a deep understanding of the transition process and often represent the best interests of both of the businesses involved. In bringing together key players, any decisions required for a seamless and successful transition can be considered and managed appropriately. A transition team can then execute that plan by gaining access to all the acquired business’s moving parts as stated within the plan itself.

Where does this information come from, however, and how can you ensure it is accurate?

Implementing Tools and Technologies

Consider, for example, a high-level acquisition of two transportation companies. While both companies work within the same sector, there are unique differences that each of them bring to the table that can complicate the entire process from the moment it is acquired to the moment that it enters into the divestiture and transition process. Some of which, are;

  • Currency and exchange rates
  • Transportation services and routes over road, rail and air.
  • Equipment and delivery contracts
  • Licenses and license holders
  • Cross-border regulations and restrictions
  • Cost of shares and stock market value

Every one of these items and more must be carefully examined during the due diligence phase, once the acquisition is successful and when it comes time to divest of the company and the cycle begins again. This allows the companies involved to have a broad understanding of what is required on the sell and buy side from a platform perspective, but manage the transition of finance and operating systems as well. Gaining access to the correct information and transition criteria is therefore crucial as the deal closes.

Technology enabled transitions, comprise of de-bundling portfolio assets from the seller’s operating procedures to a new management regime, which may have different aspirations and objectives. Therefore, similar to buy-side due diligence, sell-side divestitures must also take into consideration current processes and platforms, such as enterprise resource planning systems (ERP) and financial planning and analysis (FP & A) tools that may need to be stood up separately as they provide comprehensive and detailed access to critical information when it’s needed most during and post transition process.

If you have any questions or would like to learn how you can manage the successful divestiture and transition phase, reach out to our team! We will help pinpoint areas of concern, identify the correct solutions for you, and implement and deploy tools and resources that will better your company from day one.

Request a free consultation to explore the ROI of an ERP solution for your organization.



 

Authors: Dan Caringi and Kerry Mann

Dan Caringi and Kerry Mann are Consulting Partners with MNP and leaders within the firm’s national Digital Enterprise practice.