How to master IT challenges in life sciences deals

This isn’t the time to experiment. Transitioning the technology backbone must be embedded in transactions from the start.

A major predicament in carve-out situations in the life sciences sector is the rapid need for these newly independent companies to establish their own IT infrastructure. This transition must be swift and seamless to avoid disruptions in daily operations. 

Untangling IT systems from the parent company often presents significant challenges. These go beyond mere technical hurdles. These include maintaining data integrity, ensuring cybersecurity, and complying with regulatory requirements specific to the life sciences sector. 

Without careful planning and execution, the carve-out can lead to operational bottlenecks, increased costs, and potential risks in product delivery and compliance.

Carve-outs must move quickly after a transaction closes to operate independently, or else continue to pay a premium for transition service agreements (TSA) with their former parent company. Therefore, evaluating the cost and complexity of support and migration is crucial in due diligence. A significant challenge involves calculating the actual support cost of legacy or homegrown systems, as well as the costs associated with upgrades and concurrent operations during migration. Although this task may appear overwhelming, a directional understanding can be achieved through the expertise of seasoned professionals.

Generally speaking, IT complexity should not deter experienced private equity firms; it may actually reveal an opportunity to rebuild capabilities unencumbered from the parent company.

The life sciences sector is especially sensitive to any supply disruption, lest life-saving drugs and devices fail to reach the patients who need them most. Managing the transition of the IT backbone from the outset of a transaction is crucial to delivering products and services and supporting longer-term carve-out objectives.

Too often, strategic buyers and financial sponsors focus on the financial and operational pillars during an acquisition, carve out, or divestiture. 

AlixPartners’ experience identifies key steps to evaluate the IT function - from customer resource management through to human resources and cybersecurity - during due diligence, executing through each stage of the transaction to mitigate risk and ensure continuity.

Above all, we emphasize the importance of collaboration between IT, manufacturing, and compliance teams from the outset. Connecting efficiency initiatives with IT dependencies allows red flags and separation risks to be identified early, preserving deal value.

Priorities should include ensuring compliance with supply chain security and traceability, and transitioning manufacturing execution and warehouse management systems, as well as preserving serial number tracking systems. 

Charting compliance

The complexity of IT transitions in the life sciences sector reflects its relatively high level of regulation and compliance in areas such as the protection of patient and product data, as well as supply chain integrity and continuity. 

Investors should ensure they fully understand these critical components during due diligence and throughout the separation and stand-up process to mitigate and even avoid risks. The regulatory umbrella can include direct oversight, such as from the Federal Drug Administration, as well as indirect requirements such as those posed by the Health Insurance Portability and Accountability Act (HIPAA).

IT transitions with global reach also need to build in resilience to address standards outside the US, including EMA, ISO, and other GxP standards.

Manufacturing records

The challenges increase when they involve shared manufacturing, warehousing and distribution assets. Successful execution hinges on engaging manufacturing teams early in the IT transition planning process and establishing structured processes for aligning workflows.

Focus areas include ensuring that manufacturing execution systems are transitioned or replaced without disrupting production or quality. New or transitioned MES solutions have to be validated for compliance and operational readiness. Compliant documentation management is crucial for inventory and transportation records.

The framework for assessing whether to expand production capabilities organically or move to outsourcing providers involves marrying compliance requirements with the complexity of the manufacturing processes, including scalability and related operational risks. Options include leveraging validated cloud ERP and MES solutions to meet manufacturing and regulatory needs and outsourcing spare parts and distribution systems, while focusing on core manufacturing capabilities.

Maintaining data integrity is central to this process, including ensuring the integrity of quality records, device master records, and other manufacturing documentation.

For medical devices, serial number tracking and traceability must be embedded to ensure the integrity of quality and device master records, and to facilitate prompt and accurate pharmacovigilance activities.

Transition service agreements are central to ensuring manufacturing and supply chain continuity after a transaction closes, including the maintenance of spare parts data and distribution networks. The process should address manufacturing and regulatory compliance needs and establish governance frameworks in areas such as serial number tracking, device documentation, and inventory management.

When exiting established Transition Service Agreements (TSAs), it’s necessary to establish a roadmap for the seamless handover of manufacturing data, inventory and distribution plans. 

1. Align IT milestones with ownership’s timeline

• Define critical Day 1 close activities and establish milestone checkpoints at 30, 60, and 90 days post-close
• Track dependencies across IT, operations, and compliance to ensure a disciplined approach to integration
• Avoid rushed decisions that could jeopardize compliance or disrupt operations

2. Ensure seamless IT separation from the seller

• Secure agreements on technology separation early to align with the buyer's integration strategy
• Address network and security considerations to allow for an efficient and cost-effective transition
• Negotiate TSAs with an eye toward supporting essential IT operations while allowing flexibility for a clear exit plan

3. Secure the right IT talent for integration and ongoing operations

• Assess whether internal resources are sufficient to manage the transition effectively
• If needed, bring in temporary third-party vendors to fill gaps during integration
• Ensure post-integration IT operations are sustainable, avoiding talent shortages after Day 1

4. Prioritize ERP/MRP integration to avoid business disruptions

• ERP and MRP systems touch finance, IT, and operations, making them critical to business continuity
• Plan integration and migration carefully to eliminate downtime and avoid supply chain or financial disruptions
• Validate system configurations and ensure compliance with regulatory standards before go-live

5. Follow a cloud-first, SaaS-first strategy

• Adopting cloud-based ERP, MRP, and IT systems accelerates the transition and minimizes reliance on legacy software
• Reduces complexity by leveraging scalable, validated SaaS solutions that support regulatory compliance
• Ensures long-term IT flexibility, reducing the need for specialized on-premise infrastructure and staff

Best practices checklist