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M&A ERP transition strategies


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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.

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M&A ERP transition strategies

  1. 1. Mergers and Acquisitions ERP Carve-out Strategies Jean-Marc Orozco 2014
  2. 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. 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. 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. 5. ERP Transition strategies Carved-out system or not Different carve-out approaches Risk Matrix Conclusion 5
  6. 6. Different transition approach Full carve-out Carved-out copy No carve-out: Operate in place Day One
  7. 7. Full Carve-Out approach Buyer Seller Customizations Legacy System Set up Data loads Blank Carved Out System
  8. 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. 9. Carve-Out Copy approach Buyer Seller Legacy System Copy Carved Out System Purge non relevant data and/or restrict data access
  10. 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. 11. Operate in place approach Seller Buyer Buyer Legacy System Asset Non Asset Weekly interface Financials AP,AR,GL
  12. 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. 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. 14. Summary Risk Operate in Place Effort Day One Carve Out Copy Full Carve Out
  15. 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. 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. 17. Questions ?