SAP carve-out – knowing how to sever ties

“The only constant in life is change.” The well-known quote from Heraclitus describes the challenges of companies in a constantly developing ecosystem of technological innovations and economic changes. The acquisition, spin-off or sale of part of a company is one way of adapting to changing conditions and supporting the transformation of a company.  

Carve-out, Spin-off oder Split-off?

In mergers & acquisitions (M&A), a carve-out is where the parent company which is selling part of its business receives money. This is usually the main reason for this decision. Conversely, a spin-off is where the parent company distributes the shares of the separated subsidiary to its existing shareholders. No money makes its way to the parent company here. In a split-off, the shareholders decide whether they want to keep their shares in the parent company or swap the shares held in the parent company for shares in the subsidiary. 

The major challenge of technical apportionment

Regardless of which type of merger and acquisition is used in the project, the technical processes of system apportionment are a huge challenge for most companies and the key factor which limits the speed at which the ownership structure of a company can change. 

M&A statistics prove that carve-outs are becoming increasingly prominent. At the same time, IT and SAP system landscapes have become ever more complex in recent years. A vast number of systems, unclear responsibilities and various license models require a clear analysis of the system architecture and the scope of the technical SAP carve-out. 

The technical carve-out comprises two core components: copying the SAP application itself and migrating the application data which relates to the sold business. This usually includes the entire set of historical transaction data.  

Making a system copy and deleting data selectively

The simplest approach for separating a SAP ERP system is to copy it and selectively delete the irrelevant data. This method allows you to prepare a functional system very quickly. Both buyer and seller can implement their investment or divestment precisely. 

• In the first step, a new system is prepared whereby a system copy containing all data, adjustments and repository objects is used. 

• In the next step, the system is analyzed based on central filter criteria and deletion conditions which may cover both sensitive data and company-specific critical business areas. In most cases, the company code is used to identify the critical datasets. 

• Finally, the master data and transaction data which are not defined as part of the carve-out volume are deleted, and the system is verified and approved. 

Client copy and selective data migration 

The second method is based on the principle of selective data migration. It consists of an empty system copy, combined with a carve-out-specific data migration. The advantage of selective migration is that sensitive data does not leave the system unverified and the seller has more control over the flow of data. At the same time, generative approaches can be used to considerably reduce the effort involved in the technical carve-out of a SAP ERP system compared to typical data migrations, as they are frequently used in a greenfield project for a SAP S/4HANA implementation. 

• The data is first identified using freely definable criteria and systematic algorithms which create further demarcations and thus identify the relevant data. 

• While a target system is set up using an empty system copy, the identified data can be loaded into the system via data import and export. 

• The created system can then be verified and accepted by the buyer and seller of the carve-out. 

There are good reasons behind both approaches. However, the second approach, of selective data migration, is more flexible and easier to control. Technical improvements such as updates and process changes can be incorporated. In addition, it is easier to control which data is migrated out of the seller’s landscape or into the buyer’s landscape.  

Carve-out – an extensive transformation project

As well as transforming the SAP ERP landscape, a carve-out presents further challenges to the entire architecture and organization: Where are documents saved? Is there middleware for Electronic Data Interchange (EDI)? What happens with the current CMS system and are the old printers even connected? It is therefore advisable to prepare a thorough plan and define the source and target architecture in detail in advance in order to identify any dependencies and include them in the transformation strategy. 

At the same time, critical data such as passwords, user data or customer addresses must be assessed precisely to determine the extent to which they are part of the carve-out. Furthermore, dependencies of third-party tools and their usability must also be assessed with regard to changing license conditions. 

A system relieved of old loads presents a great opportunity for shaping the core processes of the company to be more efficient, with streamlined processes or the possibilities of new target architecture. This makes a decisive contribution to improved competitiveness and long-term company success.