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Breaking Up without Breaking Down

Planning and executing a series of divestitures in the midst of a global economic crisis


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Abstract

A large financial services company needed to sell off multiple businesses in order to raise money and repay a bail-out loan from the U.S. government. With Deloitte's help, the company was able to design and execute a program for handling numerous divestitures in rapid succession. Each resulted in an issue free Day One and smooth separation from all transition services agreements.

The Challenge

The global credit crunch had pushed the company to the point it had no choice but to divest a wide array of businesses and assets. The size, speed and complexity of the divestiture effort made it extremely challenging. So did the fact that it was occurring in the midst of a global financial crisis, when everyone was selling and almost no one was buying.

The company's operating model and IT infrastructure increased the challenge. Every subsidiary operated with significant autonomy, which led to wide variations in processes and systems. At the same time, the company's IT infrastructure was a tangled web of interdependencies, with subsidiaries relying heavily on systems and services both from corporate and other subsidiaries.

Creating a clean carve out in this rare environment is a huge challenge. Doing it for numerous simultaneous divestitures seemed almost impossible.

How We Helped

Deloitte worked side-by-side with the company to help them in their efforts to develop and execute a separation program for all of the divestitures. Our team had substantial experience in providing services in support of large and complex divestitures, and our time-tested M&A methodology provided a solid foundation for planning and executing each of the individual transactions consistently and effectively. Activities occurred in four major phases:

  • Phase I: Pre-Buyer Engagement - Blueprint and assess the current state. Establish the program charter and initial separation work plans. Develop separation blueprints and prototypes of transition service agreements (TSAs). Assess the current state of hardware and software sourcing.
  • Phase II: Solution Development - Develop Day One solutions and finalize separation plans and costs. Complete separation blueprints and assemble teams to design Day One solutions. Finalize and negotiate TSAs and finalize Day One work plans. Inventory hardware and software licenses. Calculate one-time and recurring separation costs.
  • Phase III: Execution, Day One Readiness and Cutover - Execute separation activities to manage risk and achieve a flawless Day One. Execute the Day One work plan. Assess cutover interdependencies and engage the cutover team. Create an IT readiness checklist and develop contingency plans for critical failure points. Develop an hour-by-hour and step-by-step cutover schedule. Manage the tactical cutover process and monitor the post-cutover environment.
  • Phase IV: Day Two Separation - Actively manage TSAs to achieve on-time or early exits. Fully separate each business unit upon conclusion of its TSA. Transfer or discontinue hardware and software licensees as appropriate.

 

Solution

The unprecedented pace, scope and complexity of the company's divestitures created a significant risk of failure. It also increased the risk that stranded costs and resources would continue to burden the company after the divestitures were complete.

Our support and time-tested approach helped the company in its efforts to successfully manage and execute all of the divestitures without any major Day One problems or lingering costs. Keys to success included:

  • A central program management office to coordinate parallel activities across all initiatives
  • Clear guiding principles on complex separation issues such as separation costs, real estate, licensing and IT
  • Regular status reports and a clear process for making decisions and resolving issues
  • Alignment of all businesses and corporations around a common divestiture methodology and 10-step separation process
  • Improved information sharing and establishing “one source of truth” for key separation issues such as TSAs, separation accounting policies and Day One close dates

In total, the divestitures have generated significant cash, enabling the company to continue operations and ultimately unwind its financial commitment to the U.S. government.

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