When a business is sold as part of an AM transaction and the seller continues to provide support services to the post-closing business, the parties to the transaction will enter into a Transitional Services Agreement (TSA) that regulates the provision of such services to the post-closing company. Depending on the complexity of the transitional service agreement and the critical nature of the services provided, ASDs can range from short, back-office administrative agreements with an agreement on setting fees in the future and without formal service standards, to comprehensive service agreements with a defined scope, service levels, variable pricing rules and detailed data protection rules. Design and manage transition service agreements to achieve a quick and clear separation, practical advice to consider when using Transition Service Agreements (ASDs) to achieve a quick and clear separation. Indira Gillingham, senior manager, and Mike Stimpson, senior manager at Deloitte Consulting LLP, provide practical advice on using ASD to achieve a quick and clear separation. An ASD can expedite the negotiation process and financial conclusion by allowing the agreement to be reached without waiting for the buyer to assume responsibility for all critical support services. Okay, that`s all, right? But as with any legal agreement, their quality depends on the effort you make. And since the TSA becomes an important transition project document, it pays to devote sufficient time to planning the TSA, considering that for each transaction of AM with a transitional service element, it is up to the buyer and seller to reach agreement on certain important considerations before the completion of the M-A transaction. These considerations should be negotiated as soon as possible by the parties to the TSA, ideally during the due diligence phase. The main issues to consider in negotiating and developing an ASD are presented below. A Transitional Service Agreement (TSA) is an agreement between buyers and sellers, under which the seller concludes his services and know-how with the buyer for a certain period of time, in order to support and allow the buyer his new assets, infrastructure, systems, etc. Third-party approvals should be identified as early as possible in the due diligence phase, as associated services may require considerable time to ensure a formal transition.
Third-party consent fees can be significant and should be seen as part of a better economic understanding of the AM transaction. Buyers and sellers should agree on a clearly defined strategy for the operation of the post-closing business, immediately after closing than in the long term. Be prepared to identify the specific services that are provided, the length of time for which these services are offered, the appropriate service standards and the costs and expenses incurred. Early treatment of these issues will allow for cleaner development and fewer rounds of negotiations once the TSA has been reduced to the letter. A Transitional Service Agreement (ASD) is concluded between the buyer and the seller, who envisages the seller to provide assistance to the infrastructure, such as accounting, IT and human resources, after the transaction is completed. TSA is common in situations where the buyer does not have the management or systems to absorb the acquisition, and the seller can offer it for a fee. Think about it, an ASD says, “Sellers, you`re going to help buyers for a period of time.” But what is the seller`s kind of help? Below are some thoughts to better understand the time and effort that needs to be put into planning an ASD. Please understand that an ASD is extremely unique for the situation.
The comments and questions that follow make it better to “do things you need to do yourself,” not “that`s what they need to do to have a successful ASD” – in addition to the fact that all participants should be communicated to each other and that the agreement should be very detailed.