When you say “TSA,” most people think about taking off their shoes and long lines. However, in mergers and acquisitions TSA means Transition Services Agreement. And while you do not need to take off your shoes, these TSAs similarly can cause significant delays. They also can be complex and costly.
When a buyer is acquiring something less than your entire business, the buyer may need to continue using certain support functions provided by the portion of the business you are retaining. A TSA allows a buyer to do that, for a defined period at a defined cost. In many cases, TSAs may not be necessary. If your business is being sold in its entirety and you have no affiliates, then a TSA may not be required. However, if there are affiliates and the sale is for something less than 100% of all the entities, then you may need a TSA.
When a TSA is required, you will want to negotiate carefully with the buyer, and have your legal counsel clearly document exactly what is being acquired, what is not being acquired, and what services the buyer can utilize during a defined transition period for a pre-determined cost. Some examples of topics to be addressed in a TSA include:
- Shared Employees : compensation and management
- Shared IT systems : firewalls, access controls, cost
- Shared Facilities: physical separation, insurance, and maintenance
- Shared Customers: management of A/R and disputes
- Shared Suppliers: management of A/P and disputes
As with most things related to the sale process, proper advanced planning can eliminate a lot of risk to a seller when negotiating a TSA. If you are considering selling within the next two years, you should speak with an experienced M&A banker now, about whether you will need a TSA and how you should consider structuring yours.
Have a great day, everyone.