Companies that have decided to spin off divisions of their business must quickly execute on other key transaction-readiness initiatives, in close succession or in parallel. To ensure timelines are met and that all business units, processes, and technologies are successfully separated to operate independently, it’s time to achieve the next big milestone on the critical path: preparing the operating model for Day 1.
Establish the Separation Management Office (SMO)
With more transaction expertise and industry-specific practices than traditional PMOs or TMOs, the SMO is the driving force and governing body throughout the spin-off process. When preparing for a Day 1 operating model, the SMO is the most effective channel through which to accomplish this.
The Role of the SMO
An SMO leads effective cross-functional communication and coordination during the divestiture and helps develop/manage project timelines, mitigate risks, and maintain momentum toward a successful transaction.
Key Functions of the SMO
- Project management: Develop and oversee the divestiture timeline and ensure all milestones are met. This includes proactively removing blockers, clearing milestones, and maintaining change momentum.
- Stakeholder management: Enable connection and communication between leaders and key functional and third-party stakeholders to navigate the deal timeline and the impact of cross-functional dependencies.
- Risk mitigation: Identify and address potential risks and issues in real time, empowering functional leaders to mitigate risks and issues quickly. The SMO also identifies value-driving synergies, which can increase project velocity and accelerate time-to-market.
- Resourcing: Leading up to the spin closing date, critical staff will be wearing many hats on top of their daily responsibilities. As such, the reallocation of resources and priorities will be critical to ensuring consistent team performance before, during, and after separation. Evaluate the need to support these teams with additional resources to enable them to successfully execute separation activities and meet transaction deadlines (e.g., HR, IT, Treasury).
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Design the Day 1 Operating Model
Designing a robust Day 1 operating model ensures both the SpinCo and RemainCo can operate independently and successfully post-separation. Here’s what the SMO should be targeting:
Key Components of the Day 1 Operating Model
- Target operating model: Determine the required systems, processes, and policies (e.g., benefits plans, insurance, etc.) to support the standalone business, including the standalone cost budget. This plan will chart the future success of the SpinCo, so it’s imperative that months of Day 1 preparation are conducted ahead of the official separation.
- Inter-company entanglements: Review inter-company entangled services/processes, employee matters, contracts, and systems, and establish disposition and cut-over plans to take action on required novation/disposition and communication requirements related to vendor, customer, and commercial contracts.
- Employee transfers: Create a robust employee transfer strategy and clearly document and communicate this strategy to all impacted personnel in multiple formats (via email, individual meetings, company town halls, etc.). The strategy should address transfer mechanisms, handling of compensation and benefits discrepancies, processing of visas and work permits, and the continuity of HR systems.
- Transition Services Agreements (TSAs): Define which activities must be covered by a TSA and for how long, such as IT, real estate, HR, and accounting services in the event that separation before day 1 is not achievable. TSAs should be developed at a granular level, with specific activities, cost to deliver, and a strategy/timeline to exit the TSA.
- Change management: Implement robust change management activities to ensure the NewCo is prepared to operate independently on Day 1, including stakeholder impact assessments and training plans.
With an effective SMO, you can build a structured, efficient spin-off process while focusing on a comprehensive Day 1 operating model. This model sets the foundation for future success while minimizing disruptions and maximizing value.
Taking the Next Step
CrossCountry Consulting provides a suite of accounting, risk, compliance, systems, and deal expertise that empowers RemainCos and NewCos to confidently and profitably navigate a spin-off. To establish and execute a divestiture roadmap at your organization, contact CrossCountry Consulting.
This information is for general knowledge and informational purposes only and does not constitute legal or professional advice. A comprehensive spin-off strategy requires careful planning and consideration of various factors, which is why consulting with legal, financial, tax, and other relevant experts is crucial.