1. Define the operating model of both companies.
- Understanding current state operations in detail is key to minimizing delays and cost overruns
- Define the Day 1 and future state operating model, including employee allocation, and align it to post-spin strategic objectives
- Right-size the organizations — an optimized future operating model can enhance deal value
2. Determine level of separation on Day 1.
- Different transaction rationales call for different degrees of separation on Day 1 (e.g., short timeline, complexity to separate systems)
- Regulatory bodies generally look for complete separation within two years (IT can be the exception)
- A high degree of separation will accelerate the need to manage RemainCo’s stranded costs
3. Define TSA requirements and governance model. Understand requirements and cost to deliver services on Day 1, as well as exit strategy.
4. Assess time required to establish new legal entities.
- Requirements to establish new legal entities vary by jurisdiction and industry and can take over a year to complete
- Failure to act expediently can delay establishing bank accounts, contracting with vendors, configuring systems, establishing processes, selling product and other activities, and can delay closing
5. Develop public-company governance and corporate infrastructure.
- Management and the board must be prepared for public-company responsibilities — e.g., they must be ready to file financial statements with the SEC post-close
- SpinCo can set new corporate governance structure to eliminate legacy challenges
Functional separation considerations
IT
IT is often the most entangled functional area; it requires the most lead time and it’s one of the most expensive to separate. Key activities include assessing the current system landscape; allocating systems, capabilities and infrastructure; segregating access and data; defining the Day 1 IT operating model; and, at times, creating separate IT system architectures for SpinCo and RemainCo.
Finance
A spin-off puts strain on the finance organization. Form 10 preparation, separation accounting, as well as SpinCo standup and SEC reporting, create double duties for an organization that still has ongoing business responsibilities.
HR
SpinCo generally needs to create a new HR and benefits infrastructure:
- Transferring employees may require union consultations, new country-specific payroll and benefits setups
- An employee communications strategy should address transition arrangements, time off, compensation, year-end processes and changes to health or pension benefits
Supply chain and manufacturing
Interdependencies can significantly affect SpinCo’s Day 1 operating model and separation efforts. Key impacted areas include:
- Order-to-cash and purchase-to-pay processes
- Corporate organization and principal company/tax effective supply chain management (TESCM) model
- Long-term supply agreements with RemainCo and facilities and logistics networks