Why are carve-outs so important?

By Emanuel Böminghaus, Legacy Systems Expert and Managing Director, AvenDATA

By Emanuel Böminghaus

Legacy Systems Expert and
Managing Director, AvenDATA

An IT Perspective on Corporate Spin-offs and Legacy Systems

When companies sell or spin off subsidiaries or business units, this is referred to as a carve-out. Behind this neutral term lies a highly complex technical and strategic process, especially regarding IT infrastructure and the handling of so called legacy systems.

1. What does a Carve-out Involve?

A carve-out refers to the separation of a part of a company, such as a department, subsidiary or business unit, from the parent company. The goal is legal organizational and especially technical independence. A carve-out can occur through a sale, spin-off or restructuring. Reasons include strategic realignment, increased efficiency, focus on core business or legal and regulatory requirements.

Typical Practical Examples of Carve-outs:

An automotive supplier separates from its combustion engine components division to focus entirely on e-mobility. The spun-off division is sold to a financial investor.
A technology corporation spins off its cloud division and launches it as an independent company on the stock exchange. The new unit receives its own IT system and remains independent.
A bank is required by regulatory mandates to divest its retail banking business and transfers it to another financial institution. Customer data must be fully and compliantly migrated from existing systems.
After the merger of two international corporations, overlapping business units such as duplicate IT or finance departments are carved out to realize synergies.
A pharmaceutical company sells its crop protection business to focus on human medicine. The relevant data and systems are extracted from the SAP system and archived.

In all cases, a carve-out is not only a business or legal process but also a technical IT challenge. Systems must be decoupled, data separated and often archived for the long-term, especially when legacy systems are involved. This is precisely where AvenDATA applies its specialized expertise and certified tools.

2. Why Is a Carve-out Especially Challenging for IT?

From a technical perspective, a carve-out is a highly complex intervention in a company’s existing IT landscape, particularly when dealing with historically grown system structures with many dependencies. Unlike a greenfield project, where a new system is built from scratch, a carve-out requires careful separation, migration or archiving of existing data, processes, interfaces and applications. This involves numerous challenges:

System Links and Interfaces

In modern companies, systems are rarely isolated. An ERP system like SAP is usually deeply integrated with other applications: DMS systems for document management, HR systems for personnel management, accounting and controlling tools or custom developed solutions. These systems communicate via interfaces that must be identified, adjusted or completely dissolved during a carve-out. If this step is not properly executed, there is a risk of functionality loss, data inconsistencies or system failures. A carve-out enables a company to separate from its parent organization, allowing the management team to pursue a new direction. This can occur through the sale of the business unit to an external buyer or by spinning it off into an independent subsidiary. Corporate carve-outs are often carried out to focus on core business, free up financial resources or maximize the value of the separated business unit.

Data Separation and Responsibilities

A key technical aspect is the separation of data, meaning the question: which data belongs to the unit being carved out? This separation is not always clear. Especially in multi client systems like SAP, company codes, cost center or organizational units must be identified and distinguished. Even within individual tables, shared data records often exist, such as master data for customers or suppliers, which may only be partially transferred. There is also a legal component: which data must be retained and by whom?

Database and Table Knowledge

A successful IT carve-out requires deep knowledge of the underlying database systems and table structures. The data is stored in relational structures, meaning individual pieces of information are linked to one another. For example, if a sales document table is extracted, corresponding master data, transaction data and customization settings must also be considered to ensure the data remains readable and usable later. Without this in-depth understanding, inconsistencies may arise that render the migration ineffective.

Handling Legacy Systems

Many of the required pieces of information are not stored in modern, well maintained systems but in so called legacy systems. These are old applications that are no longer in operation but cannot be deleted due to compliance requirements. These systems are often no longer maintainable, technically outdated or only run in virtual environments. Nevertheless, data must be selectively extracted from these systems and either handed over to the buyer or archived in a legally compliant manner. Often, there is hardly any remaining know how within the company for these systems, which makes extraction even more difficult.

Testability and Validation

After extraction, the data must be complete and accurate, as there is no simple way to access the original system after the carve-out. This means detailed test runs, validations with specialist departments and automated verification procedures are necessary to ensure the completeness, consistency and readability of the transferred data. This includes both structured data (such as table contents) and unstructured information (such as attachments, documents or scanned files).

Time and Resource Management

Carve-out projects are often under significant time pressure, especially when they are part of a transaction with fixed deadlines. At the same time, they are resource intensive and require close collaboration between specialist departments, IT data protection officers and external consultants, all while running parallel to daily operations. This can tie up additional capacities and lead to prioritization conflicts.

Conclusion

A carve-out is not a routine procedure for IT but a highly complex large scale project with numerous dependencies. Technical success plays a decisive role in determining the economic and legal success of the transaction. Specialized expertise is especially required when separating and archiving legacy systems and this is exactly where AvenDATA comes in.

Technical process of a Carve-out (Without Test Run)

A carve-out in IT is a structured process in which data, systems and access rights are separated from an existing system environment and either archived, migrated or transferred. In mature IT landscapes with many dependencies, a methodical approach is essential.

1. Preliminary Analysis / System Evaluation

Identification of all affected systems (e.g. SAP, DMS, CRM, HR)
Definition of the data scope to be extracted (e.g. company codes, clients)
Review of existing interfaces, data dependencies and custom developments
Assessment of potential technical risks and regulatory requirements

Goal: Establish technical understanding of scope, complexity and separation potential.

2. Project Planning and Scoping

Creation of a project timeline with clear responsibilities and milestones.

Definition of the target system (archiving solution such as ViewBox, migration, transfer to buyer)
Specification of data formats and archiving standards
Coordination with IT, specialist departments, data protection officers and if applicable, the works council
Goal: Establish a clear objective and a solid foundation for execution.

3. Technical Preparation and Extraction Concept

Selection of suitable extraction tools or development of export logic (for example SAP ABAP based or Oracle ODBC based)

Definition of the tables and data objects to be extracted, including relationships
Setup of technical access (such as read only users, database access)
Configuration of the target structure for later archiving or data transfer

Goal: Ensure smooth extraction that is structured, documented and traceable.

4. Productive Data Extraction

Execution of productive data extraction on the defined cut off date
Extraction of structured data (tables, documents, master data) and unstructured data (such as PDF files, attachments)
Data backup quality and secure transfer to the target system (such as archive)

Goal: Complete and secure separation of relevant data from the legacy system.

5. Validation and Quality Assurance

Technical checks for completeness and consistency (such as plausibility checks, foreign key validation)
Functional review based on defined testing guidelines or target/actual comparisons
Documentation of data quality for verification purposes with third parties (such as auditors)

Goal: Ensure data integrity and legally compliant documentation.

6. Provision in the Target System / Archiving

Transfer of data to the archiving system (such as ViewBox with read only access)
Configuration of user rights, archive structure, search and filter functions
Integration of procedural documentation and technical logs
Training of archive users (such as accounting, tax department, IT)

Goal: Usable, long-term accessible and audit-proof data provision.

7. Project Completion and System Shutdown

Preparation of the final report including documentation of all completed steps
Recommendation for deactivation or controlled decommissioning of the legacy system
Handover of all technical artifacts (mapping tables, log files, test protocols)

Goal: Transparent project completion meeting all regulatory and technical requirements.

The technical execution of a carve-out requires deep system knowledge, a methodical approach and secure handling of sensitive data. Even without a preliminary test run, a successful carve-out is possible also provided that the preparation and validation phases are well structured. AvenDATA supports you with specialized tools, experienced database experts and a proven project methodology developed over many years.

AvenDATA has already successfully completed several hundred carve-out projects and has extensive experience in separating, extracting and archiving data from a wide range of systems, including SAP oracle, Navision, legacy systems and many others.

Are you planning to archive a legacy system?