IT Carve-Out Planning: Separating Technology When Divesting Business Units

IT carve-out planning for divestitures requires separating shared technology infrastructure, disentangling software licenses, migrating data, and building standalone systems for the divested business unit. According to PwC analysis, successful carve-outs achieve an 8-11% value uplift, with 5-7% coming specifically from expedited TSA exits, making technology separation planning a direct driver of deal value.

Key takeaway: Carve-outs have re-emerged as a defining deal type in 2024-2025, with rising capital costs and investor pressure driving corporates to divest non-core divisions. IT separation is consistently the most complex and expensive workstream, often determining whether the transaction achieves its value creation thesis.

For North Carolina businesses involved in divestitures, whether selling a manufacturing division, spinning off a product line, or separating acquired business units, IT carve-out planning directly impacts deal timeline, stranded costs, and ultimate transaction value. The Piedmont Triad, Charlotte, and Research Triangle regions host numerous mid-market companies navigating these complex separations.

Planning a divestiture? Preferred Data Corporation provides end-to-end IT carve-out services for North Carolina businesses. Call (336) 886-3282 or schedule a consultation.

Understanding the IT Carve-Out Challenge

Why Technology Separation Is Uniquely Complex

Unlike other functional areas (HR, finance, legal), IT infrastructure is deeply interconnected:

• Shared networks carry traffic for multiple business units
• Enterprise applications (ERP, CRM, email) serve the entire organization
• Security systems protect all units through unified policies
• Data resides in shared databases with complex ownership boundaries
• Technical staff support multiple business units simultaneously

According to Mayer Brown's analysis of carve-out transactions, the interdependence between the divested business and the seller's remaining operations creates cost and complexity that can significantly affect deal value.

Stranded IT Costs

After divestiture and TSA exit, the seller is left with stranded IT costs that inflate the retained business's cost base. Major stranded cost areas include:

• IT personnel who supported both divisions
• Enterprise software licenses sized for the combined entity
• Data center capacity and infrastructure oversized for retained operations
• Network circuits and connectivity previously shared

The sooner the cost review exercise is undertaken, certainly before TSA expiration, the greater the chances of minimizing or eliminating stranded costs.

Transition Services Agreement (TSA) Planning

What a Technology TSA Covers

A technology TSA defines the interim services the seller provides to the divested business during the separation period:

• Infrastructure services: Network, servers, storage, data centers
• Application services: ERP, email, collaboration tools, specialized software
• Security services: Firewalls, endpoint protection, monitoring, identity management
• Support services: Help desk, system administration, vendor management
• Data services: Backup, disaster recovery, data warehousing

TSA Duration and Cost Structure

Typical technology TSA durations for mid-market carve-outs:

According to PwC's research, typical cost savings from early TSA exit include 0.5-0.8% uplift from avoided markup payments alone.

Key TSA Negotiation Points

For North Carolina businesses negotiating technology TSAs:

• [ ] Define clear service levels (availability, response times, performance)
• [ ] Establish escalation procedures for service issues
• [ ] Include data protection and security requirements
• [ ] Specify audit rights for service verification
• [ ] Define exit triggers and notice periods
• [ ] Address change management during the TSA period
• [ ] Include insurance and liability allocation
• [ ] Plan for early termination scenarios

Shared Service Separation Methodology

Phase 1: Discovery and Scoping (Weeks 1-6)

• Inventory all shared technology services and infrastructure
• Map application usage by business unit
• Identify data ownership and access patterns
• Document network topology and traffic flows
• Catalog all software licenses and their assignment
• Assess technical staff allocation across units

Phase 2: Architecture and Planning (Weeks 4-10)

• Design target-state IT architecture for the divested entity
• Select technology platforms and vendors
• Develop detailed migration plans for each system
• Create dependency mapping and sequencing
• Establish project governance and communication structure
• Define success criteria and testing protocols

Phase 3: Build (Weeks 8-24)

• Provision standalone infrastructure (on-premises or cloud)
• Procure new software licenses
• Configure applications for the separated environment
• Establish new security perimeter and policies
• Set up independent backup and disaster recovery
• Build help desk and support capabilities

Phase 4: Migration (Weeks 16-36)

• Execute data migration in planned sequences
• Perform parallel operations and validation
• Cut over users in phased approach
• Validate all integrations and data flows
• Conduct user acceptance testing
• Begin TSA exit for completed service areas

Phase 5: TSA Exit and Optimization (Weeks 24-52)

• Formally terminate TSA services as they are replaced
• Address stranded costs in retained organization
• Optimize the new environment for the divested entity's specific needs
• Document all systems and processes
• Transition ongoing operations to permanent support model

Software License Disentanglement

Common Licensing Challenges

Software licensing creates some of the most complex issues in IT carve-outs:

Enterprise agreements: Microsoft, Oracle, SAP, and other vendors offer enterprise-wide licensing that cannot be simply divided. The seller's enterprise agreement may not transfer to the buyer, requiring new license procurement at potentially higher per-unit costs.

Named-user licenses: Determining which users belong to which entity and transferring named licenses requires careful vendor coordination.

Site licenses: Licenses tied to specific physical locations may not cover the divested entity's new operations.

Custom software: Internally developed applications may require code escrow, source code transfer, or ongoing development agreements.

Vendor Negotiation Strategies

• Engage software vendors early (before closing if possible)
• Understand each vendor's change-of-control policies
• Explore volume purchase agreement restructuring for both entities
• Consider cloud migration as an opportunity to simplify licensing
• Document all license entitlements and compliance status pre-separation

Preferred Data Insight: For manufacturing carve-outs in the Piedmont Triad, we frequently encounter shared ERP systems (SAP, Epicor, Infor) that require careful separation planning. Cloud-based ERP migration during the carve-out often provides both separation and modernization benefits.

Data Migration Planning

Data Ownership Determination

Establishing data ownership requires:

• Contractual analysis of customer data obligations
• Regulatory requirements for data retention and access
• Operational needs of both retained and divested entities
• Historical data access patterns by business unit
• Shared data categories requiring ongoing access by both parties

Migration Approach Options

Big Bang Migration: All data moves at once during a planned cutover window. Higher risk but shorter parallel operation period. Suitable for smaller datasets and simpler environments.

Phased Migration: Data moves in planned waves, typically by department or system. Lower risk with longer timeline. Suitable for complex environments with many interdependencies.

Replicate and Synchronize: Data is copied to the new environment and kept synchronized until final cutover. Provides fallback capability but adds technical complexity.

Standalone Infrastructure Buildout

Build vs. Buy vs. Cloud Decision

For divested entities in North Carolina, three primary approaches exist:

On-Premises Build:

• Capital expenditure for hardware and facilities
• Timeline: 3-6 months for procurement and configuration
• Best for: Manufacturing operations with specific OT/IT requirements

Managed Service Provider:

• Operational expenditure model with reduced internal IT needs
• Timeline: 1-3 months for service activation
• Best for: Non-technology businesses wanting IT as a service

Cloud Migration:

• Flexible capacity with minimal hardware investment
• Timeline: 2-4 months for core services
• Best for: Organizations prioritizing agility and scalability

Timeline and Cost Ranges

Typical IT Carve-Out Timelines

IT Carve-Out Cost Estimates

How Preferred Data Supports IT Carve-Outs

With 37 years of technology expertise and a BBB A+ rating, Preferred Data Corporation provides comprehensive IT carve-out services for transactions throughout North Carolina. Serving High Point, Greensboro, Winston-Salem, Charlotte, Raleigh, Durham, and the entire Piedmont Triad, we bring deep experience in manufacturing and industrial technology separation.

Our IT carve-out services include:

• Technology separation assessment and planning
• TSA scope definition and service level development
• Standalone infrastructure design and buildout
• Cloud migration for divested entities
• Application migration and data separation
• Managed IT services for newly independent business units
• Security implementation for separated environments
• TSA exit management and stranded cost reduction

Navigating a divestiture? Call (336) 886-3282 or contact us online to discuss your IT carve-out needs.

Frequently Asked Questions

How long does a typical IT carve-out take for a mid-market manufacturing company?

Mid-market manufacturing carve-outs in North Carolina typically require 12-18 months from planning through TSA exit. The timeline depends on the complexity of shared systems, particularly ERP and production systems. Starting IT separation planning before transaction close can reduce overall timeline by 3-6 months.

What are stranded IT costs and how can they be minimized?

Stranded IT costs are expenses that remain with the seller after divestiture, including excess staff, oversized licenses, and unused infrastructure capacity. Minimizing these costs requires early planning, right-sizing license agreements before separation, and potentially renegotiating vendor contracts. Addressing stranded costs before TSA expiration provides the greatest savings.

Can cloud migration simplify an IT carve-out?

Yes. Migrating the divested entity to cloud-based infrastructure can significantly simplify separation by avoiding hardware procurement, reducing licensing complexity, and providing immediate scalability. Cloud migration during carve-out is particularly effective for mid-size businesses that do not require on-premises infrastructure for operational reasons.

What are the biggest risks in IT carve-out projects?

The primary risks include underestimating shared system dependencies, inadequate data separation planning, vendor change-of-control clause surprises, and insufficient testing before cutover. Engaging experienced IT carve-out specialists and conducting thorough discovery before committing to timelines helps mitigate these risks.

How should TSA pricing be structured to incentivize timely exit?

Best practice includes cost-plus pricing during the initial TSA period (typically cost plus 5-15% markup) with increasing premium tiers after the expected exit date. This structure motivates the buyer to build standalone capabilities while fairly compensating the seller for ongoing service provision.