When selling a business, one issue that often is overlooked is whether any post-closing services need to be provided under a transition services agreement (TSA). This is particularly true when the sale is of a portion or division of a business rather than the entire enterprise. In the next few blog posts, we’ll look at when TSAs are advisable and how to use them.
IS A TSA NEEDED?
The buyer and seller should determine early on whether they need a TSA. Not every deal requires a TSA. However, if either party will need assets or assistance from the other party after closing, a TSA is advisable.
TSA LENGTH: HOW LONG?
A TSA of 3-6 months might be sufficient to deal with system migration and training issues. But in a complex situation, for example, if the buyer will need to rely on systems controlled by the seller, a multi-year TSA may be required.
TSAs: BEGIN EARLY
TSA issues should be contemplated while the structure of the transaction is still in flux and before the buyer has been identified. For this reason, the seller’s initial preparation is likely to be refined as the deal progresses. Nevertheless, there can be significant value in careful planning early in the deal process, in part because this enables the seller to present a workable deal package to the buyer, including information that the buyer will need to quickly assess any overlaps or gaps in assets and capabilities for running the target business.
LIMITATIONS
Both TSAs and outsourcing agreements often involve one party providing the other with services. However, in TSAs, the seller (as the service provider) is generally not in the business of providing those services. Therefore, a seller may only be willing to commit to provide the TSA services in the same manner that it provides similar services to itself.