Why M&A Plays

Current State Operating Model

Improve final stages of deal negotiation. Learn about crucial analysis to determine the assets for sale. Get the clarity on how the business works and plan ahead.

About the play

While at first glance, it may seem obvious what is being sold, determining which assets are for sale is not so easy.  Key assets, whether they are people, equipment, buildings technology or IP may, in fact, be shared across multiple business units. Deciding which of these assets and people stay with the parent, and which ones go with the sale, can be complicated, particularly if economies of scale are lost, properties are shared, or valuable know-how is given up. Not knowing what infrastructure the buyer has in place can make this even more challenging. It is therefore common for buyers and sellers to argue over what is included in the transaction well into the final stages of the deal negotiation.

Deciding what is actually for sale requires careful analysis so that the seller’s own competitive position is not undermined in the years ahead.  The first place to start is to understand current operations.

Operating model analysis and design is a powerful way of translating divestiture strategy into a series of execution plans. It has the ability to provide much-needed clarity on how the business to be divested currently works, and how it should work in the future.

Understanding operational links and entanglements is one of the biggest issues executives face when divesting a business. To combat this, a coherent operating model approach to the divestiture will help reduce the pain of surprises, avoid costly transaction delays and increase buyer confidence.

The steps here are laid out in a sequential and logical order, but the reality is that operating model work is in large measure repetitive, creative and messy. It involves a number of workshops looking at the problem and potential solutions from different angles. The work is not just an intellectual exercise in problem-solving. Through the efforts of workshop participants and other stakeholders is about building understanding, acceptance and ultimately a commitment to the carve-out work ahead.



Executive sponsor, separation manager and deal team




Meeting Agenda, Whiteboard, Strategy Documents


Spend one day or more to prepare materials for a two hour play.

Running the Play:


Define the Operating Model

Starting from the initial strategy and decision to divest, the first step is to understand what the divestiture would like in an operational sense.  Many may be familiar with the “Business Model Canvas” developed by Alex Osterwalder. It’s a useful framework to describe the main elements of a business. It describes how an organization is structured to deliver customer value and profitable growth. The “Operating Model Canvas” developed by A.Campbell, M.Gutierrez and M. Lancelot complements the business model canvas by taking an operating view of the organization, and the way it works in delivering growth.

Operating Model Example
Operating Model Example

The operating model canvas is a visual representation that shows how the various operational capabilities (people, activities, systems, assets etc) combine to deliver upon value propositions to the customer.

The purpose in defining the current ‘as is’ operating model, is to understand the degree to which the business to be divested is operationally entangled with the parent. This understanding can be achieved through workshops (or meetings) with the appropriate SMEs.

Since this involves a number of stakeholder groups, it’s best to run a number of workshop sessions (or other) with each of the groups to fully uncover the degree of commingling with the parent.


Map Out the Current Organization

Using existing organization charts and lists of employees, map out the roles and positions within the divested entity.

  1. Confirm which employees have responsibilities, perform work or have specialist knowledge/skill connected with the parent.
  2. Confirm which employees are eligible for retention schemes
  3. Identify missing positions, vacancies and absentees if the business were standalone
  4. Highlight performance, cultural issues .
  5. Assess how well the organisation model correlates with the Value Delivery Chain.
  6. Confirm current skill gaps that must be filled by Day 1.

Use the session to probe and uncover gaps, risks, issues etc. concerning the organization model and people-related issues.


Understand Partner, Supplier and Customer Relationships

The transition of customers and partners can be a sensitive area. Care needs to be taken to ensure the value of these relationships is maintained and continues to be a positive experience. Additionally, customers and partners could attempt to renegotiate more favorable terms as they become aware of the divestiture and shift balance of power.

  1. Confirm which suppliers are shared with the parent.
  2. Check if there are shared channel partners and whether if there’s potential conflict.
  3. Confirm shared technology, strategic and knowledge partners with the parent.
  4. Review all contractual arrangements, particularly notification periods, special clauses etc.
  5. Assess where there could be dis-synergies and impacts on revenue.

Review Physical Assets, Office Locations and Property

Real estate and property is a key enabler of divestiture success, so attention needs to paid to leveraging these assets as a strategic priority.

  1. Confirm the locations and offices shared with the parent.
  2. plant and equipment shared with the parent.
  3. Assess what the divested entity must have for it to function. Ensure also that business locations appropriately map to market demands.
  4. Review leasing arrangements and where capital has been invested into owned assets.

Understand the Information Technology Overlap with the Parent

Given that technology today is complex and plays an integral part of business operations, it’s likely that up 80% or more of the separation effort is technology related.  It is therefore critical to do a complete assessment of the target and understand the level of integration in terms of physical assets, software, interfaces, data and intellectual property.

  1. Review the technology infrastructure (data centers, network, telephony, routers, switches) and assess the level of integration.
  2. Review all software applications and shared usage.
  3. Review all software licenses and technology contracts. Similarly, ascertain ownership and use.
  4. Review data and the degree it’s shared with the parent.
  5. Review IT services (help desk etc.), security, admin and the extent it is shared.

The steps above are indicative of the activities required to understand and assess the level of technology overlap.


Review how Business Performance is Managed

What policies/procedures will the business need to have on Day 1?

What incentives etc. are most/least effective in enabling performance?

What training requirements may exist?

What gaps exist in setting and achieving performance targets?


Review Value Delivery Chains and Key Processes

Central to any business is understanding the key operating processes and how they create and deliver value. This is particularly important where there is an operational overlap between the parent and the divested entity. The best way to start is with the processes that directly or indirectly drive the organizations' supply chain. This can be an exhaustive exercise; only do what is required to uncover the problems that need to be addressed and not to simply document the processes themselves.

a. Map out the sales function and the way it translates pipeline opportunities into sales orders. Usually called “Opportunity to Order” or O2O for short.

b. Similarly map out the “Order to Cash” OTC process and the level of commingling in terms of people, processes and technology. Make a note of the technology, data, responsibilities and process gaps/issues.

Order to Cash OTC Process
Order to Cash OTC Process


Where there is an Overlap, Map Out Other Core Processes Chains such as:

A. Procurement

B. Accounts Receivable & Payable

C. Payroll

D. Training

E. Recruitment

F. Supplier Logistics


Review Overlaps Within Each Business Function

Consult with each of the business units (Finance, Tax, Legal, HR, Sales, Marketing, etc.) and confirm the connections they have with parent and what may need to be severed.


Compile the Problems That Need to be Addressed

A key input into determining the optimal carveout timeline is achieved by working with the key stakeholders in legal, HR, IT, and finance and their cross-functional dependencies.  The purpose here  is to highlight the problems, gaps and decisions required, so they can be brought into carveout planning sessions and an effective timeline that will work across the organization.

* Log the risks, issues, assumptions and dependencies - commonly known as a RAID.

risks, issues, assumptions and dependencies log
Risks, Issues, Assumptions & Dependencies Log


Document the Actions Required to Address Operating Model Gaps

Operating Model Gap Action Items
Operating Model Gap Action Items

Make a Log of the Major Decisions That Need to be Made

Where the decisions are particularly complex, then a paper would need to be produced.

Major Decisions Log
Major Decisions Log