What PE Firms Leave on the Table During Every IT Carveout

Summary

Most PE firms treat IT carveouts as a problem to survive, defaulting to lift-and-shift separations that preserve years of underinvestment. Resultant EVP of Managed Services Nathan Ulery argues carveouts are instead a rare window to modernize infrastructure before technical debt compounds and future acquisitions get harder to integrate.

[Estimated read time: 4 minutes]

Most carveouts waste their biggest opportunity

A carveout is one of the only moments in a company’s life when there’s a prime opportunity to modernize the infrastructure. There are no existing data centers to depreciate; the cloud vendor relationships are not established. IT infrastructure that was integrated inside a larger enterprise now must stand on its own. In this unique moment, you’re not inheriting an infrastructure you’ll be forced to work within. You get to build one.

And yet, most PE firms respond to that moment by defaulting to lift-and-shift: separate the environment as quickly and cheaply as possible, stabilize, move on. I understand the logic. Separating a Microsoft 365 environment sounds like it should take an afternoon, but it requires third-party tooling, staged data migration, and coordinated cutover across every device and location. There’s already enough risk in the transaction without changing the scope. But here’s what that decision actually costs you.

The one time the math works in your favor

When a parent makes the decision to divest a business unit, capital allocation for that unit dries up well before the deal closes. The portfolio company you’re carving out has been starved of IT investment for some time.  Lift-and-shift preserves the neglect that preceded the sale.

Technical debt doesn’t age well. You’ll pay for it, either in outages or in the cost of fixing it later, under pressure, when you have fewer options that all cost more than they would at the time of carveout.

Done deliberately, the separation sets a stronger foundation. Modern infrastructure with clean processes. A security and compliance posture built for where the business is going, not where it has been. And critically, an IT environment designed to absorb what comes next: growth, new locations, tuck-in acquisitions.

Begin the carveout with the exit in mind

PE-backed companies grow. That’s the thesis. And every acquisition, every new location, every expansion creates an IT integration event. If your infrastructure is solid, those events are manageable. If it’s not, every one of them is a fire drill.

I’ve worked with firms that were acquiring a new business every month. Those who had set up their IT environment deliberately with clear standards, scalable infrastructure, and a partner who knew the playbook could integrate a new acquisition in under thirty days. Their internal team wasn’t running around reconfiguring systems, they were focused entirely on the business: pricing, products, customers. The IT integration happened in parallel, on a repeatable model, without drama.

That‘s what treating the carveout as an opportunity makes possible. Beyond getting a clean separation, you’re building a platform for everything that follows. The PortCo won’t be distracted by critical incidents 12 months after the TSA has ended because the environment is still running on equipment more than a decade old; they’ll keep steadily creating value.

The work is hard either way

The complexity of a carveout is real. There’s a reason most TSAs are scoped for six to twelve months. The firms that finish in three or four months aren’t lucky, they’re prepared.

The separation work is complex whether you lift-and-shift or modernize infrastructure. The only question is whether you use the moment to get back to where you were, or to get where you want to go.

If you have a transaction on the horizon and want to compare the cost of recreating the old environment with the cost of building the one you want to own, I’m glad to have that conversation.