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Post-carve-out investments in technology are often underestimated

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Divestitures and carve-outs are consistently attractive targets for both private equity and strategic buyers, offering significant value—but this type of transaction comes with distinct complexities that often lead to significant unexpected costs.

Buyers must allow ample time and budget to deal with the reality of unplanned tasks and challenges that come with completing any technology-related separation project. For example, an anticipated $150,000 expense can quickly turn into a $1 million post-close requirement. For that particular buyer, it is an expensive lesson in the value of IT due diligence and planning for “known unknown” costs.

In many carve-outs, buyers do not even invest in a basic level of IT due diligence that would provide critical insights into the current and post-close state of the carve-out’s technology systems. For buyers who perform IT due diligence, the challenge is estimating the effort and cost of separating and building these systems—the estimate is usually too low, resulting in an expensive surprise within the first six months of the investment.

Read more about the unplanned requirements common to all technology projects in our article, Due diligence is the tip of the iceberg, which was published in PEI’s Operational Excellence Special.

 

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