According to EY gas divestment success depends on four critical dimensions: deal strategy, cost management, speed and risk mitigation.
Ensuring long term success, both on the buy and sell side, requires companies to identify and address a number of common challenges. Carve outs are often complex and demand adequate resources to add value to both sides of the transaction.
- People may not be easily aligned with the new business units (legal entity versus business unit).
- Allocation of split heads can result in cherry picking and stranded costs.
- Seller staff might not want to transition to the buyer and engaging those people during transition may be a challenge.
- Key talent will always be in demand (both the buyer and the seller might want some of those same people).
- Shared services provided to/from during the transition period can vary greatly depending on the buyer (corporate versus private equity), resulting in stranded costs.
- Interdependencies are generally underestimated and uncovered too late.
- Who ‘owns’ specific applications can be difficult to determine.<
- What applications will be needed during transition needs to be assessed early on for effective logical separation on Day 1.
- Access to non-public personal information post close can create data privacy challenges.
- Day One seperation requirements will impact timeline to close deal.
- Assets (tangible and intangible) may not be easily identifiable by the business unit.
- Consider whether all royalty interests, entitlements and burdens are properly reflected.
- Identify when the most recent title reviews were completed and how comprehensive they were.
- Ownership of shared intellectual property must be determined and separately licensed, if necessary for post close use.
- Identify whether there are restrictions on the transfer of seismic and well data libraries.
Third party obligations
- All legal obligations need to be identified, which can be extremely challenging if a central repository does not exist.
- Seller and target need to identify and reach consensus on what is in scope.
- Business and regulatory licenses are critical for Day 1 readiness.
- Separation of third party obligations is a significant undertaking and should be started as soon as possible.
Adapted from a report by Emma McAleavey.
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/04092014/canadian-gas-divestments-1233/