DealLawyers.com Blog

Transition Services Agreements are an important component of many M&A transactions. Because the parties don’t always know at the outset the nature and extent of the services that will be required, they are often also quite complex agreements to negotiate and implement.  This Willis Towers Watson blog – which is the first in a series of blogs on TSAs – provides an overview of the key considerations that buyers and sellers in preparing to enter into a TSA. This excerpt addresses the big picture issues that a seller should keep in mind:

For a seller, it is critical to determine, well in advance of a deal, what support can and should be provided, for how long and at what price. It is also important to understand interdependencies between TSA items. For example, does the target need to remain on the human resources information system (HRIS) to maintain payroll under the TSA?

A seller also needs to determine if the divested business provides resources, support, processes or technology to the RemainCo. If so, the seller may need reverse TSA services. A reverse TSA allows the divested business to provide support to the seller or former parent. However, providing services to the buyer in support of a business that the seller is exiting will not always be high on the priority list of the seller, nor does it always make sense.

Nevertheless, as a seller, if you do not prepare, you may be end up with your back against the wall during the heat of an M&A negotiation. This may result in your business providing broader services or for a long duration just to get the deal done. But with planning and preparation, you will have more control and may be able to structure the deal in such a way that the TSA services will be minimized or may not be required.

The next blog in the series addresses how to structure an effective TSA and a governance process that ensures that the provision of services, billing and exit arrangements are efficient and effective.

– John Jenkins