Mergers & Acquisitions 2009—Preparing for "Carve-Out" Transactions: Information Technology

Even during periods where the economy and "business" in general are doing well, corporate managers pay close attention to the proverbial bottom line. Information technology (IT), and the myriad of people, software, hardware, and services that provide a company with instant connectivity and information, is an increasingly large part of any corporate budget. Not surprisingly, companies make every effort to bundle and package these products and services to achieve the desired result at an acceptable price. Larger companies in particular are able to take advantage of economies of scale to achieve favorable pricing. In doing so however, companies may unintentionally create obstacles to divesting business units that are benefiting from these "shared" or "pooled" services. This may occur as the result of pricing terms that are not automatically adjusted for the divestment of a business unit, licensing issues, or an understanding of how employee time and equipment usage are apportioned among various business units.

We anticipate that the current economic climate will increasingly lead companies to engage in carve-out transactions (i.e., the sale of subsidiaries or divisions of a larger business enterprise). Not unlike the increase in distressed company acquisitions, we expect that carve-out transactions will be a dominant part of the M&A market over the next few years. Virtually every financial and strategic investor and intermediary will need to be well versed in these projects and the unique and challenging issues they present.

This LawFlash is one of a series of LawFlashes, each highlighting certain complex technical, financial, and legal issues that need to be addressed in splitting off parts of a larger business. Morgan Lewis, with its broad array of relevant practice areas such as technology outsourcing (technical transitional services having become perhaps the most difficult aspect of carve-out transactions), intellectual property, labor and employment, and sophisticated tax analysis, is positioned to skillfully assist with these increasingly complex transactions.

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