Separating Manufacturing Divisions From a Global Pharma Leader

A leading private equity firm was considering acquiring two divisions from a global pharmaceutical company in order to create a new business focused on manufacturing medication ingredients. To inform their investment thesis, the members of the deal team needed to understand how much it would cost to stand up the new business. And when the deal went through, the carved-out organization needed guidance to separate from its former parent, establish a new operating company and begin its own new era—all while complying with nuanced government regulations for pharmaceuticals.

Approach

Separation Strategy

From due diligence through deal closing, FCM partnered closely with the buyer to build the elements of a smooth transaction and an independent organization. We played a critical role in negotiating the transition service agreement (TSA) and oversaw preparation for the information technology (IT) activities that would occur on Day One of the new organization. The biggest task at hand: separating the manufacturer’s extensive lab and quality systems alongside its regulated enterprise resource planning (ERP) environment. Preparing to replace this major system meant implementing a new solution for procurement and payment processes, user/security profiles and identity access management, then performing end-to-end user acceptance testing. We executed all of these efforts in compliance with the U.S. Food and Drug Administration’s regulatory requirements for pharmaceutical companies, like using computerized system validation. In parallel, we led development of the IT schedules for the TSA, positioning the business for an efficient separation.

Separation Execution

Upon the deal’s successful close, we immediately began work to split off the company’s systems and build its IT organization, since no technology resources had transferred with the acquisition. In addition to implementing a structured transition program with IT controls, FCM developed a standalone infrastructure design and brought in leading third-party providers for systems hosting and support. The new business was soon operating in its own technology environment after transitioning to an independent ERP platform, separating hundreds of applications, migrating to a new data center and establishing its own user help desk.

Impact

Close partnership between FCM and portfolio company leaders made for a fast and successful transition. Halfway through its 24-month TSA period, the new business was operating 95% of systems within its own technology environment. Within 18 months, it was completely separated and ready to grow as an independent organization.