The Carve-Out and Merger Integration Challenge – “The Trouble with Tribbles”

The Trouble With Tribbles

Albert Einstein is quoted, “I used to go away for weeks in a state of confusion”, and for those of us who have successfully managed and led carve-out deals – that state of confusion is the biggest challenge to overcome.  Time is precious, and a couple of weeks of confusion leads to delays and costs with technology service agreements, operations efficiencies, marketing and branding strategies, HR policies and packages, finance reporting and banking covenants – so it is best to get those states of confusion out of the way prior to Day 1. Successful stand up or integration is accomplished with a detailed and comprehensive plan on how the Company is going to stand on its own or operate as one company in the fastest and most effective manner.

In my experience, there are five key areas to focus on during a carve-out stand up and merger integration, and each has its own unique associated challenges and risks:

Communications and Project Management

  • Day 1 Plan – 100 Days Out


  • Supply Chain - Procurement, Logistics and Distribution
  • Inventory Management
  • Facilities and Footprint
  • Quality
  • Production

Back Office Essential Functions

  • Finance
  • Legal
  • Human Resources

Information Technology and Systems 

(I don’t discuss this in this article – but feel free to reach out – there are some great ones out there!)

  • Support
  • Data Migration and Conversion
  • Enhancement


  • Sales Teams
  • Marketing
  • Customer Service

Communications and Project Management

James T. Kirk always sat in the Captain’s Chair on the USS Enterprise, and his crew was at their respective duty stations.  Everyone had a radio, a Teleporter, and was in somewhat constant contact during states of emergency. These principles apply to the practical side of the post-merger integration and carve-out exercise.  There has to be a captain steering the different work streams, and all of those individual work streams have interdependencies that rely heavily on one another that have to be discussed across leads.  There are too many interdependencies and variables for one person to handle every item. Recently, I was involved in a project where communication was a driving factor in ensuring that inventory levels and purchases were made in a consistent manner. The problem was that each factory produced different products, and prior to the carve-out, these purchasing and warehousing functions were handled by Corporate. Once Corporate went away, each plant buyer had to relearn contracts, economic order quantities, and had to train the “new” organization on the differences between requirements. These temporary inefficiencies and delays were avoided by having an effective Project Manager, and both the Purchasing and Operations teams discussing these items on a regular basis and working through the challenges together.


For many of us, the luxury of finding out about the carve-out or merger 100 days out doesn’t happen that often. That does not mean that an experienced and multi-faceted team should not be engaged in looking at the Day 1 stand up plan well before the deal is consummated.  In my experience, and depending on industry, there are thousands of items that have to be handled – and during the deal phase, while negotiations, lending packages, sale price, and legal/audit items are ongoing, the leadership team will be distracted and extremely busy.  Forming the core team after the carve-out or merger occurs is too late – there has to be an agreed upon structure, a detailed plan, and an appropriate communication plan in place prior to executing the deal – or, as many studies show, the 25% - 30% success rate becomes more of a reality.


Peter Drucker defined efficiency and effectiveness pretty clearly by saying, “Efficiency is doing things right; Effectiveness is doing the right things”. During a carve-out, businesses find out quickly what the “right things” are – and where they are missing the ability to do the right thing.  Prior interdependencies between divisions, departments, plants, warehouses and other groups are more substantial than originally anticipated.  It is human nature to say, “We handle that” – and for a plant manager producing a certain product, or a warehouse stocking only certain items, that is mostly true.  Unfortunately, during a carve-out, most of the functions that the organization didn’t handle are discovered very quickly, creating chaos on both the plant and warehouse floor.  Inventory shortages, stock outs, delivery schedules and logistics are all customer facing issues that quickly become apparent during a carve-out. 


Without strong pre-close planning, process and procedure mapping, detailed interdependencies on existing corporate structures, customers are going to be unhappy because products are not going to be produced and shipped as promised.  I have found the use of a detailed assessment tool that highlights those needs and interdependencies and prepares the operations teams for new tasks and responsibilities that have to be handled on Day 1 of the carve-out is a must have. This ensures that not only is there continued efficiency, but that effective operations continue, and the planned and perceived value start to be realized early in the merger integration and carve out life cycle.

Back Office Essential Functions

The dreaded Technology Service Agreement (TSA), and the price tag that comes with it, is the biggest back office hurdle that most C-Level executives see during the carve-out process.  The TSA overhanging cloud is traditionally the motivation behind standing up back office functions as quickly as possible, and “cutting the cord” from the original corporate structure.  It doesn’t define the how, it provides ample motivation, and without strong planning and execution, the back office is going to wallow in an overwhelming number of details.  A typical example is a conversation I recently had with an executive who went through a carve-out, and their company had a large number of traveling sales teams, all with company mandated corporate cards.  On Day 5 of the carve-out, the Finance and HR teams were inundated with calls that the travel cards were no longer working, a minor detail in the grand scheme of things, but a terribly disruptive and challenging situation for the folks in the field.  Another example, it only takes one error on one paycheck to create a distraction that ripples through the organization, and every distraction is a delay to the organization moving forward as an independent entity. 


Prior to Day 1, and while the TSA is being completed, the essential functions must be planned out, and key providers have to be a part of that team.  Benefits plans, treasury functions, help desk communications planning, software vendors – these are just a few of the teams that have to be engaged, and prepared on Day 1 to address the needs of the new company – or have a detailed plan in place that is executable and defines when the new company is officially on its own.

Sales, Customer Service, and Marketing

I am not quite sure who coined the phrase, “If we don’t take care of the customer, someone else will”, and during a carve-out – weaknesses in planning and strategy become apparent to the customer.  Call centers, order entry, product offerings, and customer communications are just a few of the areas that come into play during the carve-out scenario.  More complex issues, such as pricing models, and sales forecasts that combined prior company product lines, or consolidated multi-company pricing,  CRM updates – these all are essential items that have to focused on if the carve-out is going to keep the existing base of customers and grow into new markets.  Typically, a strategy session is conducted, and not much of that plan filters down to sales team, the customer service center, or other customer facing functions. It is vital to have someone assist in that transformation process through detailed SKU rationalization, pricing models, and other tools and processes to make sure that your sales team, your customer service representatives, your CRM tools, and your communication plans are effectively managed throughout the carve-out process.


In summary, there are a myriad of details, and to go back to Star Trek analogies – the Trouble with Tribbles episode – can be exactly like a carve-out or merger integration – one Tribble is easy to deal with, but too many, and they cause devastation. The same goes for distractions – too many distractions, and the original value of the target and the perceived benefits are never realized.  The object of proper planning in a carve-out or merger integration is to manage the “tribbles” and to keep the company focused on the goals and delivery methods that realize the proposed value of the carve-out/merger in the first place.  What are your thoughts?  I learn from each deal, and welcome your comments and advice!

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