Congratulations – you’ve made the decision to carve out a piece of one portfolio company to create a new business. You’re about to unleash a lot of new opportunity, potentially allowing you to reduce costs, accelerate investments in technology, new products and geographies to meet customer needs and fuel new growth for both companies.
Just how much opportunity is up to you. It will depend on making a lot of good decisions and avoiding some fairly significant pitfalls along the way.
Why IT is often the biggest carve-out challenge
Your most valuable resource will be time. The better your plan and decisions, the less time (and consequently money and value) you’ll waste. That’s the reason IT is likely to have the greatest impact on your success.
According to divestiture strategists at EY,
“IT is often the most entangled functional area and the one that requires the most lead time and it is typically the most expensive to separate. Starting early can reduce the time between sign and close, reduce complexity and cost and reduce Transitional Service Agreement (TSA) scope.”
TSAs typically run for a 12-month period; you’ll pay a heavy price in management, operational and opportunity cost if you run over. Getting on the fast track to a successful IT carve-out is about pulling in the right people, process and tools for each step of the process. Here’s how to make the most out of your transition year.
Success factor 1: Bring in the right people
Most PE firms will start their carve-out journey with a leading strategy consulting company to assist them with building the financial analysis, tax and legal strategy and separation plan.
As you move from high-level strategy into execution, you’ll want to bring in an interim CIO consultancy to manage the entire IT process. This includes completing IT-related due diligence and execution strategy, offering timely advice and reporting to the leadership of all three entities (PE firm, NewCo and RemainCo), and providing the dedicated day-to-day management to make technical decisions, select systems and systems integrators (SIs), hire staff and deliver a seamless, secure and compliant data migration, testing and cutover.
When selecting this critical partner, look for these essential qualities:
- Decades of experience — not just in IT leadership but specifically planning and managing IT carve-outs, preferably in the relevant industry, tech stack and geographies of your business
- Vendor neutrality, so that you can be confident that sourcing decisions are made based on the right solutions for your business and not ulterior incentives (this is sometimes referred to as a fiduciary relationship – see below)
- Proven playbooks and process accelerators to ensure a swift, comprehensive transition and robust IT management framework
- A mixture of skillsets, including both seasoned leadership that can provide highly engaged strategic guidance and executive oversight, as well as dedicated project managers and technical resources responsible for day-to-day project deliverables.
Is your IT carve-out advisor a fiduciary?
When you hire a doctor, lawyer or certified financial planner, you can be confident that these fiduciary professionals are bound by law and professional ethics to put your interests first – even when they might stand to gain by doing otherwise.
The rules governing interim CIOs or IT carve-out advisors are not so clear-cut. In fact, it’s not uncommon for advisors to receive incentives to recommend that solution or steer business to a particular vendor.
Such arrangements aren’t necessarily corrupt or even disadvantageous for your carve-out transaction. But they should be disclosed up front and in writing, and your advisor should be prepared to discuss alternative options that might be appropriate. Be sure to ask.
Within these parameters, you’ll want the team to be fairly lean, so you’re not paying for overhead capabilities you won’t use. For example, expect the core team to outsource niche skills or systems implementation that are required for only a portion of the project.
On the other hand, executive governance is not the place to cut corners. We’ve all seen projects where senior leadership is highly visible during the pitch stage and maybe a quarterly governance call, but always seems to have a conflict for regular weekly check-ins. Set clear expectations that your IT principal remains fully engaged throughout strategic and operational planning, reporting and decision making.
Make and communicate key organizational decisions
Your interim CIO will collaborate with other functional leaders, such as finance and human resources, to align on budgets, organizational design and change management plans. Being proactive in communicating the rationale for the spinoff and key decisions as they are identified can increase staff confidence in the transition and overall project success. A safe (preferably anonymous) channel for staff to communicate questions is also a great idea.
“When employees know a change is coming but don't have answers to key questions, they tend to make them up,” according to change management consultancy Prosci. “The answers they come up with on their own are often different from and worse than the truth.”
Finally, your interim CIO will help you build the right IT teams, ensuring that both RemainCo and NewCo have the appropriate resources to carry on as two successful businesses.
There is a natural friction when it comes to IT staffing. Typically, RemainCo leaders are willing to let go of junior or support-level staff but want to keep top performers. NewCo also needs a strong team to operate effectively but may not have the luxury of inheriting a full, capable IT department from RemainCo. Often RemainCo staff are excited at the prospects of working for the newly independent company.
Working with your leadership and HR team, your interim CIO will determine a reasonable cost structure and staffing needs for the two distinct businesses, manage tensions and quickly identify and recruit new talent as needed.
"An interim CIO plays a pivotal role in your carve-out strategy, ensuring a seamless IT transition and creating a compelling value proposition for employees, investors, and customers alike. They guide system separations and build a new IT team aligned with the required skills, growth potential, and cultural fit."
— Donna DeGrande, Executive HR Advisor to Private Equity
Success factor 2: Process makes perfect
So now you have the right team in place. How do they operate?
Underlying every highly effective business operation are robust and well-defined processes, offering the structure you need to ensure nothing important gets missed, while still moving at speed (time is money), and agility to address unique circumstances and dynamic environments.
Your interim CIO should have a process playbook ready to manage your IT carve-out. Ask to have a look. At the highest level, it will look something like the below:
What you’re not seeing in the diagram are the dozens — even hundreds — of projects that underly the overall program. It’s like building a house. You start with a site, a budget and a blueprint of what you want to build. Next, just as a house needs a physical infrastructure, your carve-out will need an IT infrastructure of hardware, software, networks, storage, data and security.
Like your house requires mechanical systems such as plumbing, electrical and heating/cooling, your new business will need selection and implementation of major systems like HR management, ERP, CRM and marketing automation. Will you need the deluxe, enterprise-grade version of that system, or is the builder’s budget model more appropriate for the new slimmed-down organization? Is it a lift-and-shift, a re-implementation, or an entirely new system?
Each of these essential components represents one or many IT projects that your interim CIO must orchestrate — much like a general contractor hiring, ordering, overseeing delivery, managing the costs of each sub project and ensuring they all work together seamlessly.
Your interim CIO will also be responsible for ensuring adherence to relevant industry regulations (such as privacy and data management) and the carve-out rules established in the transition service agreement.
This is also a great time to rid yourself of tech debt — the “dry rot” of technology nuisance projects that grow more expensive the longer you wait to address them. Getting rid of that custom Salesforce code that NewCo won’t need, or upgrading elderly servers is an investment can pay long-term dividends in cost, security, functionality and time. IT simplicity can be a competitive advantage.
Unlike building a new house, an IT carve-out also involves decommissioning systems. The faster NewCo can wean itself from RemainCo’s systems, the sooner you stop bearing those additional costs, which can add up to tens or hundreds of thousands of dollars a month.
Success factor 3: The right tools for the job
You can physically walk through a house throughout the build. But how are you supposed to keep an eye on IT construction?
The right tools make all the difference in tracking and optimizing the transition, embedding best practices, managing risk consistently across the portfolio, and ensuring simple, effective ongoing IT management post carve-out.
Your interim CIO should use and share tools to efficiently manage project features such as:
- Executive reporting (management dashboard)
- RAID (Risks, Action items, Issue and Decisions) log
- Project status consistency
- Time, effort and budget burndown tracking
- Vendor selection (see graphic below)
- Testing, including global, remote and interdependent test cases
- Defect/issue tracking (integrated with standard IT systems such as JIRA)
- Program manager reporting, including alerts for projects with issues
- Precision cutover plans that go down to the minute as you hit the final stages of the transition and navigate time zone differences and complex interdependencies.
Ideally, all these tools are not only combined in a single integrated platform, but also integrated with other enterprise tools already in use for collaboration (Teams, Slack, Office 365, Google, etc), IT management (Jira, ServiceNow etc) and other key tasks. Integration isn’t just convenient; it also fosters knowledge management, increasing the likelihood artifacts related to the separation are captured and retained for ongoing reference in the new company.
"Our PMO tool is built on Smartsheet, which is used by 85% of the Fortune 100 and considered a market leader by Forrester and Gartner. The PMO Toolset allows me to manage a program with dozens of concurrent projects efficiently and collaboratively, serving up the data and metrics to executives, identifying areas to focus on, and ensuring a successful TSA exit — on time and budget."
— Ted Michon, StrataFusion Principal/PMO Practice
Ready to learn more?
The StrataFusion Group is a trusted CIO advisory consultancy that has partnered with PE firms such as KKR, TPG, Vista Equity Partners, Silver Lake Partners and many others.
Everfox, a TPG-backed cybersecurity firm spun out from Forcepoint, had a positive IT carve-out experience working with StrataFusion in 2024.
“The StrataFusion team has been a pleasure to partner with. They bring the skills, resources, and experience required to ensure on-time, on-budget delivery, which was imperative for a substantial carve-out such as ours. As the executive responsible for the overall SMO effort, knowing I had a world-class partner handling the IT portfolio was reassuring and the results did not disappoint. I'd welcome the opportunity to work with the StrataFusion team again in the future."
— Matt Kinard, Vice President of Global Operations, Everfox
To learn more about StrataFusion Group’s IT Carve-Out Practice or request a no-obligation discovery workshop, please contact StrataFusion Partner and Private Equity Practice Leader Greg Higham