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I have been blogging on IT carve-outs and their importance so far. So here comes a first Definition of what it actually is.

Within the context of mergers and acquisitions, the term divestment or divestiture refers to a particular form of a demerger, which results in generating liquid assets. A demerger is defined as the act of separating an organization into two or more stand alone assets (Cascorbi 2003). According to Cascorbi, the major characteristic of a demerger is the disintegration of an organization, where the term disintegration functions as a generic term that covers all legal, business, process and organizational related activities of a demerger. Disintegration can be considered as the counterpart of the term integration during an M&A transaction.

While the term demerger hits the core of the concept – namely disintegration – and is commonly used in practice, it is problematic as it implies a preceding merger. The term carve-out is basically used as synonym, which appears to be less restrictive. Broyd and Storch (2006) and Buchta et al. (2009) define a carve-out as the operational activities needed to conduct a divestment, in which the carve-out object is established either as a stand-alone organization or merged with another organization.

A carve-out typically includes the actions required to de-integrate the IT systems of the carve-out object from its parent organization. In this vein, Leimeister et al. (2008) define the IT carve-out process to include the separation of all shared information and communication technology related activities.

To conclude, I typically use the term divestment or divestiture to refer to the financial or corporate strategic aspects of separating a business unit from its parent organization. The term carve-out covers all operational activities needed to implement a divestment. Finally, the term IT carve-out refers to the activities needed to separate a carve-out object’s IT assets from its parent.

Perspectives on Corporate Transitions

Perspectives on corporate transitions.png

In the figure above, I try to illustrates the different perspectives of the buyer and seller to clarify the different terms. The seller takes the strategic decision to divest a business unit. This leads to a carve-out project separating the business unit from its parent’s organizational structure. Sub-projects are responsible for different functions including legal, financial, tax, human resource, production and IT issues (Leimeister et al., 2008). The result of the carve-out project is an independent viable unit that can either be integrated into another organization or operate as an independent, standalone organization (Broyd and Storch, 2006; Müller, 2006; Buchta et al., 2010). In the former case, the buyer manages a post-merger integration (PMI) project to realize synergies by integrating the business unit into the new parent organization (see, for example, Wijnhoven et al., 2006; Mehta and Hirschheim, 2007; Henningsson and Yetton, 2011).

References

Broyd, R. and B. Storch (2006) Carve to measure. In: Handbuch mergers & acquisitions management, B. W. Wirtz, (Ed.). Gabler, Wiesbaden: pp: 1223-1237.

Buchta, D., M. Eul and H. Schulte-Croonenberg (2009) Strategisches it-management: Wert steigern, leistung steuern, kosten senken. 3 Edn., Wiesbaden: Gabler Verlag.

Cascorbi, A. (2003) Demerger-management. Wiesbaden, Germany: Gabler.

Henningsson, S. and P. Yetton (2011). Managing the it integration of acquisitions by multi-business organizations. pp: Paper 7.

Leimeister, S., J.M. Leimeister, J. Fähling and H. Krcmar (2008). Exploring success factors for it carve out projects.

Mehta, M. and R. Hirschheim (2007) Strategic alignment in mergers and acquisitions: Theorizing is integration decision making. Journal of the Association for Information Systems (JAIS), 8(3): 143-174.

Müller, H. (2006) Einführung zum mergers & acquisitions management. In: Handbuch mergers & acquisitions management, B. W. Wirtz, (Ed.). Gabler, Wiesbaden: pp: 1187-1207.

Wijnhoven, F., T. Spil, R. Stegwee and R.T.A. Fa (2006) Post-merger it integration strategies: An it alignment perspective. The Journal of Strategic Information Systems, 15(1): 5-28.

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