Transitional Service Level Agreement

When a business is sold as part of an AM transaction and the seller continues to provide support services to the post-closing business, the parties to the transaction will enter into a Transitional Services Agreement (TSA) that regulates the provision of such services to the post-closing company. Depending on the complexity of the transitional service agreement and the critical nature of the services provided, ASDs can range from short, back-office administrative agreements with an agreement on setting fees in the future and without formal service standards, to comprehensive service agreements with a defined scope, service levels, variable pricing rules and detailed data protection rules. 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. What corrective measures apply to the buyer if the seller is not acting appropriately under the TSA? A seller may have little incentive to work in accordance with the service levels set out in the TSA and its supporting documents after the closure, unless there is explicitly liquidated damage that can be recovered by the buyer – standard compensation cannot provide adequate motivation. In order to ensure the greatest possible applicability, you should consider recouping a trust fund due to poor performance under the TSA (although this may be difficult to negotiate in the major M-A transaction). Design and manage transition service agreements to get a quick and clean separation, is OK, easy, backed up properly? But as with any legal agreement, their quality depends on the effort you make. And as the TSA becomes an important transition project document, it pays to spend enough time planning the TSA, taking into account the practical advice you should take into account when using Transition Service Contracts (ASDs) to achieve a quick and clear separation. 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.

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. A diversified industrial company has divested operations in its portfolio. Companies tended to be highly centralized and used a shared service center for back-office, IT, HR and purchasing. Business activity has also brought distribution and manufacturing to market. KPMG was hired to help the client detect links and develop a day 1 operating model for “a typical asset in the portfolio.” This first exercise provided the model for determining what would be expected of a buyer and what the seller would be willing to provide, and specific data elements were collected to help the customer set prices and service levels. For example, back-office processes have been used to collect KPIs and to establish estimates of the FTEs needed to support processes. The high-level performance calibration allowed the client to determine how long it would take for a buyer to replace services (i.e. outsourcing) and how long the customer would have to reduce lost costs.