The value of mergers or acquisitions can be reduced if
data migration is not sorted out before completion
A number of recent mergers and acquisitions have hit the news
headlines because of the complexity of the accompanying data
migration.
Many financial analysts have voiced their concerns that such
migrations may affect the value of the deal - and rightly so.
Parties are often willing to negotiate ad infinitum on price,
liability and warranties, overlooking the more practical issue of
how the purchaser is going to gain data from the purchased business
until some way into the negotiations.
Failure to give data migration the consideration it deserves may
result in a lack of clarity as to who is responsible for what and
who bears the cost. Ultimately this can eat into the value of the
transaction for both seller and purchaser.
Sort out your data
Where the transaction involves a stand alone business, data
migration is not necessary. However, where the business is part of
a larger group decisions about access to data can be complex. Often
too little time is allocated to agree details of data migration
which may delay the deal. In most cases this will result in the
parties agreeing to sort out the detail after the deal is
signed.
To avoid later complications and costs a number of areas need to
be considered at an early stage.
As with any migration of data between IT systems there will be
some data cleansing needed. A seller will typically negotiate to
provide the data "as is" on the basis that the business is
currently operating effectively with the data as it stands.
From a purchaser's perspective this is unsatisfactory. It
ignores the fact that the purchaser is missing one essential part
of the business: the IT system which holds and processes the data.
So there must be some compromise on the extent to which the seller
will contribute to the purchaser's cost in cleansing the data.
In most cases it is not possible to migrate the data to the
purchaser on completion of the financial transaction. The seller
will retain the data on its system and either license the use of
such systems to the purchaser or continue to hold and process the
data for the business on behalf of the purchaser for a limited
period until migration can be organised. Such a service, along with
the details of the migration, will be documented in a separate
transitional services agreement.
Third party consents
Where a seller is providing services for a transitional period
it will need to revisit the terms of any software licence or
outsourcing arrangement which will be used in the provision of
those services.
Often the seller will need to obtain the consent of a licenser
for any sub-licensing or use of the software. Alternatively, the
purchaser may be required to obtain licences in their own
name.
In the case of any outsourced services, the seller needs to
consider whether it is able to require the third party to provide
services to the purchaser. Again, generally, the seller will need
to negotiate with the outsourcer to secure the provision of the
services to the purchaser. Each third party consent will come at a
cost. It is important to determine, at an early stage, what
consents will be required, who will bear the cost and what the
options are if any cannot be obtained.
Some of the data will be information about identifiable
individuals, which will bring it within the scope of the Data
Protection Act. The purchaser must review whether its existing act
notification is sufficient to cover the data to be acquired. The
seller must also consider whether any data should be isolated or
removed from any database for reasons of confidentiality and should
ensure that its existing act notification covers disclosure of the
data to the purchaser.
Data migration can be complex and costly, but without access to
and use of the necessary business data the purchaser is not able to
exploit the value of the business it has acquired. It is vital that
the issues surrounding data and data migration are carefully
considered by both parties before contracts are signed to enable
the separation of the business from the larger group quickly and
efficiently and with as little disruption as possible to the
business of either party.
Mike Rebeiro is head of media, communications and technology
at international law firm Norton Rose