The Institute for Mergers, Acquisitions, and Alliances once called corporate carve-outs the “new darling” of M&A, and in recent years, their desirability hasn’t slowed down.
High levels of private equity activity during and after the pandemic, coupled with the increasing demand for large entities to optimize for profitability and growth, has created ample opportunity for mutually beneficial carve-out deals across markets and sectors.
At the same time, however, demand is growing for companies to move their IT systems to the cloud in order to stay agile and competitive.
The result: Many newly carved-out companies in need of immediate digital transformation.
And while PE firms can spot opportunities with ease, they usually aren’t equipped to execute the IT transformation necessary for long-term profitability and growth.
Expert third-party service providers like Protera are working with PE firms at a growing rate to help them successfully execute the carve-out process and enable their new businesses to hit the ground running with a new, independent IT infrastructure on the cloud.
In this article, we’ll explore key IT considerations for private equity-backed carve-outs, and how Protera supported Airnov Healthcare Packaging successfully divest from its $4B parent company.
Quick Takeaways
- Today, corporate carve-outs also come with a need for immediate digital transformation.
- PE firms and other organizations face significant knowledge and skill barriers related to successful cloud migration and modernization.
- Hiring an expert third-party IT service provider is the best way to ensure a cost-effective and seamless transition that maintains business continuity.
- Protera recently helped Airnov execute their $4B carve-out in less than one year while moving SAP and non-SAP systems successfully to the AWS cloud.
Private Equity-Backed Carve-Outs: Key IT Considerations
In every M&A transaction, due diligence around technology infrastructure is essential for buyer organizations. It’s important to ask and know the answers to questions such as:
- What is the current state of IT for the subsidiary being carved out?
- Does the deal include IT systems and infrastructure, or will new ones need to be built?
- What about accompanying resources, like IT staff, intellectual property, and data?
- How do the answers to the above questions impact the quality of the deal and business continuity after it’s executed?
For private equity-backed carve-outs, these questions are even more critical. When a PE firm purchases an independent company, they know they’re also purchasing the current IT assets.
Carve-outs are different. The business being purchased once operated as part of a larger parent organization. When separated, it will likely be missing foundational components of a standard IT infrastructure—things like a website or an ERP system.
Relaunch as a new standalone organization means, in many respects, starting from scratch from an IT perspective.
The Impact of a Professional IT Modernization Partner
The nature of business operations today means that IT continuity is arguably the most important aspect of planning a corporate carve-out.
IT is no longer a support system for a business, but a requirement in order to function at every level. In order to minimize business disruption and accelerate time to value, PE firms must have an immediate IT modernization plan in place.
But PE firms, while experts in identifying strategic opportunities, are not typically as well-versed in executing IT transitions.
Adding to the challenge is the increased demand for businesses to move to the cloud, and the complexity that comes with migrating comprehensive ERP systems (such as SAP) to new cloud environments.
Corporate carve-outs actually present a fantastic opportunity to modernize with cloud, but the knowledge and resource barriers to achieving it are many, and include:
- Uncertainty about data management, and integrating systems
- Misalignment between business goals and current IT structure
- Gaps in internal skills and expertise
- Bottlenecks caused by legacy systems and applications
- Security and compliance risks
Alt-Text: Bar chart showing barriers to achieving cloud outcomes, which can impact successful corporate carve-outs for PE firms.
These barriers are exacerbated by the simultaneous strategic demands of a corporate carve-out process. Hiring an expert IT modernization provider is often the best approach for ensuring a successful transformation, often with opportunities for immediate cost optimization. And, with deep relationships with hyperscale cloud providers.
Working with a service provider allows you to meet the above (and other) IT challenges head-on with the expert knowledge and experience you need. As a result, you can complete the carve-out process in a fraction of the time it would take otherwise, all while maximizing financial and strategic outcomes.
A Real-World Success Story: Airnov Modernizes with Cloud Amidst $4B Carve Out
The Challenge
In 2019, private equity-backed healthcare packaging company, Airnov, was slated to be carved out from its $4B parent company’s on-premise data center to form a new entity. At the same time, they intended to replicate, modernize, and outsource their SAP and non-SAP systems on the cloud.
Airnov leadership was tasked with completing the carve-out in just nine months, and building an entire IT organization within the first year to meet existing business needs and scale for future growth (both organic and via acquisition). With 5 manufacturing facilities, 3 dedicated R&D centers, and five sales offices, this was no small undertaking.
Airnov’s Global Director of IT, Amy Hasty, was focused on maximizing time to value within their tight budget. She partnered with Protera to complete the carve-out and cloud transformation, as well as access ongoing application services for workloads on AWS.
The Solution
Protera was hired to design and architect Airnov’s target cloud environment for the carve-out project—one that would support both SAP and non-SAP systems and a full IT outsourcing model on the AWS cloud.
The Protera team designed a migration plan that had zero impact on the parent company and leveraged innovative tools and technologies across the AWS landscape. Together with Hasty and the Airnov team, they completed three rounds of testing to ensure a seamless transition for Airnov’s global employees across all business units and facilities.
The cutover of new production systems on AWS was an entire month ahead of schedule, and the Monday after go-live, worldwide locations were able to operate as usual.
“When I look back on go-live, we didn’t miss a beat,” shared Hasty. “On Friday our company was operating on the old systems. Monday morning after the cutover, we were up and running on a global scale, in one big-bang migration, during COVID, with no consultants in any location.”
Along with a team of highly-skilled resources supporting the business 24/7/365, Protera now provides Airnov with expanded comprehensive Basis support and a proprietary cloud management platform, providing full visibility into system monitoring, cloud architecture on AWS, performance metrics, and cloud spend.
Protera worked diligently with Airnov to right-size systems while balancing cost versus what is needed to run systems effectively.
Recently, Airnov leadership partnered with Protera to architect a new disaster recovery solution on AWS, focused on building a solution that met necessary resiliency and cost parameters.
“As a private equity-backed organization, we were investing in initiatives that would add value for our customers, but also provide an immediate return for the business,” said Matthias Brommer, Airnov’s President and Managing Director.
“Our partners have to bring us opportunities to continuously optimize cost and improve performance, enabling us to focus on establishing Airnov as the go-to solution provider in the pharmaceutical, nutraceutical, and diagnostic industries.”
The Protera partnership provided that level of expert, innovative, and ongoing support that Airnov expected and needed to succeed.
The Future
With a sound technology foundation, a secure and right-sized modern AWS cloud environment, and a partner they can count on, Hasty and her team have developed a secure IT operations strategy to build upon in the future.
“We are focused on modernizing to add value,” says Hasty. “With the right partners, the right cloud, and the strategy in place, Airnov will proactively and securely remain a competitive force in the industry.”
Power of Modernization Planning
Experiencing the same level of results that Airnov was able to achieve is less about a particular budget or technology tool and more about getting the right people involved.
According to McKinsey, transformation beyond the carve-out separation fails 70% of the time because of the human element. People resist change, and internal teams don’t have the right knowledge and resources to reduce that resistance with business continuity and outcomes that improve the end user experience.
Partnering with a cloud expert like Protera empowers the business to modernize with IT planning and solutions that minimize disruption, provide opportunities to immediately reduce cost in infrastructure, and position the carved-out entity for success.
To learn more about how we can guide your transformation, talk to a Protera expert today.