An ASD is a fairly accurate business example of real events: mom and dad help with their son`s expenses during the first few months he works, but very quickly he is able to take care of everything on his own. It`s not that ASD is complex at first glance; but that`s what lies in the TSA deal that causes many potential headaches and hiccups. For each M&A transaction that included a transition services component, it is the responsibility of both the buyer and seller to reach agreement on certain important considerations prior to the closing of the M&A transaction. These considerations should be negotiated by the parties to the TSA as early as possible, ideally during the due diligence phase. Below are the key points to consider when negotiating and creating an ASD. Service levels should be defined in the TSA or supporting documents with the right level of detail so that the parties can understand exactly how the requested services are to be provided, but without giving the seller contractual “exits.” Avoid complying with “reasonable,” “commercially reasonable,” “best commercial efforts,” and similar performance standards that could allow seller to technically operate in accordance with the TSA, but without actually providing the requested services in a manner that provides buyer with the benefit of their agreement. Think of it this way: an ASD supposedly says, “Seller, you`re going to help the buyer for a while.” But what kind of “help” does the seller have? Here are some considerations to better understand how much time and effort should be invested in planning for ASD. Please understand that ASD is extremely unique to the situation. Transition service contracts are common when a large company sells one of its businesses or certain non-core assets to a less demanding buyer or a newly created company that has senior management, but the back-office infrastructure has not yet been put in place. They can also be used in carve-outs, where a large company transforms a department into a separate public company and then offers the infrastructure services for a defined period of time.
A transitional services agreement (TSA) is entered into between a buyer and a seller and provides for the seller to provide infrastructure support such as accounting, IT and human resources at the end of the transaction. 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. Buyers and sellers need to agree on a clearly defined strategy for how the post-closing business will operate both immediately after closing and in the long term. Be prepared to identify the specific services that will be provided, the length of time those services will be offered, the appropriate service standards, and the applicable costs and expenses. Addressing these issues early will allow for cleaner development and fewer rounds of negotiation once the TSA is reduced to drafting. The following comments and questions better represent “things to ask yourself”, not “this is what you need to do to have successful ASD” – apart from the fact that all participants must be communicated and, of course, the agreement must be very well detailed. In our final view, “Fast Break – A way to design and manage TSAs to achieve a fast and clean separation,” Indira Gillingham, Senior Manager and Mike Stimpson, Manager, Deloitte Consulting LLP, provide practical advice on how to use ASD to achieve a quick and clean separation. An TSA can speed up the negotiation process and financial close by allowing the company to move forward without waiting for the buyer to take responsibility for all critical support services. Assessment of the buyer`s needs. The main task of the buyer at the beginning of the transaction is to evaluate the seller`s responses to the requests described above (through initial meetings with the seller and due diligence questionnaires) so that the buyer has a better idea of the systems and services used to carry out the target business. .