What Are Transitional Services Agreements

Transition service agreements are common when a large company sells one of its activities or certain non-essential assets to a less demanding buyer or to a newly created company in which management is present, but where the back-office infrastructure has not yet been assembled. They can also be used in carve-outs, in which a large company relocates a split to a separate public company and then provides infrastructure services for a defined period. 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. An ASD is a fairly accurate business example for real events: Mom and Dad help with their son`s expenses for the first few months he works, but pretty quickly he is able to take care of everything on his own. It`s not that an ASD on his face is complex; But that`s what`s in the TSA agreement, which brings a lot of headaches and potential hiccups. The development of a Transitional Services Agreement (ASD) is a common step in the merger and acquisition process. Although ASDs are routine, they remain complicated, tedious and are not always well accepted by a buyer or seller. Transition service agreements can be extremely difficult to manage if they are not properly defined. As a general rule, poorly developed ASDs give rise to disputes between the buyer and the seller over the extent of the services to be provided. The allocation of liability is often based on leverage and the attribution of liability in the main acquisition documents. Whether and to what extent the seller is responsible for the failures of his own third parties should be carefully considered. It is customary for an ASD to waive indirect damages (i.e.

consecutive damages, penalties, impairments, etc.) and set individual and aggregate limits for direct damages. Consider appropriate exceptions to these exceptions and caps, such as breaches of confidentiality, gross negligence, intentional misconduct, violations and embezzlement. Often, the seller must rely on his own suppliers and service providers to provide services to the company after closing. Determine whether the seller has sufficient rights under its existing upstream contracts and licenses to provide the requested services on its own, or whether third-party agreements and licenses need to be entered into or modified with vendors and service providers. Consider the criticality and complexity of the services requested, as well as the cost and timing of the conclusion or modification of third-party agreements (given the possibility of third parties having reasonable leverage and little incentive to provide short or transitional services).