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What Is A Reverse Transition Services Agreement

10.14.21 Posted in Uncategorized by

A transition service agreement (TSA) is an agreement between a buyer and a seller in which the seller enters into its services and know-how with the buyer for a specified period of time to support the buyer and get used to its newly acquired assets, infrastructure, systems, etc. 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. Reverse TSA occurs when the services originally provided internally by the seller must now be provided by the buyer (for the seller) because they were provided by the business entity that was sold to the buyer. The same considerations that apply to ASD apply to reverse ASD. Buyers often overlook reverse TSA and are not prepared for the seller to also require services from the buyer because of the exception. There is also the role of determining whether software licenses should be used to enable the provision of transitional services. For example, many enterprise licenses do not allow the use of software for “service desk” purposes when the software is used to provide a service to an unaffiliated third party. For these reasons, early and informed diligence must be integrated into the transition services process to ensure that the planned transition strategy can be effectively implemented. Because of the time and resources often required to complete an ASD, parties should determine at the outset whether an ASD is warranted. Not all operations require TSA: the layout revolves around the networking of the vendor and the target company, as well as the particular skills of each party. For example, will the divestiture result in the purchaser acquiring all assets (systems, service agreements, licenses, etc.) necessary for the operation of the target business (i.e., The “clean-break” scenario)? If so, is the buyer confident that they will be able to manage the sold business without the seller`s help? Will the seller also be able to operate his retained business without assets or assistance from the divested business? If the answer to these questions is yes, ASD may not be required.

However, if either party requires assets or support from the other party after closing, TSA is required. Transitional services are typically provided by the seller to the buyer (or the former parent company of the spin-off company) to ensure business continuity and preliminary operational support for the affected business during a “transition period” after closing. Transitional services may also be required by the buyer or the divested company if, for example, mixed tools, operations, software products and know-how are to be used by the seller or the former parent company for a certain period of time. These “reverse” transitional services are often overlooked. Negotiating the TSA in parallel with the purchase agreement avoids these pitfalls, especially in a competitive bidding process. Maintaining a TSA office on the buyer`s side is an effective way to manage TSA agreements with the seller. This agreement offers the following benefits: Transition Services Agreements (TSA) have become common (and complex) in divestiture sales, mergers, and spin-offs due to the increasing operational complexity of the environments affected by these transactions. And if M&A activity picks up as expected despite a slow start in 2012, these deals will continue to play an important (but often undervalued) role in the success of the transaction (especially after the closing dust has settled). .

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