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