M&A Information Technology Best Practices

Chapter 16

Transition Services Agreement (TSA)—Untangling the Web

Simon SinghNikhil UppalJennie Miller

Divestitures are usually tricky to pull off, particularly when the affected people, processes, and systems are deeply integrated within the seller's business, or when services and infrastructure are shared across multiple business units. Identifying and carving out the pieces in a divestiture can be a complex and time-consuming process; however, with experience and careful planning, an effective outcome for both parties can be achieved. During the planning process, participants from the affected business units on both sides must think through the transition period from close of transaction (Day 1) to complete separation of the businesses (Day 2) to determine the strategy for each business process, associated applications, and underlying infrastructure.

Adding to the integration challenge is the time constraint that is associated with most mergers and acquisitions (M&A) deals. Statistically, small carve-outs can close as quickly as 30 days after announcement, and even larger deals (in excess of $1 billion) average only 115 days to close.¹ In many cases, this does not give the buyer enough time to respond, particularly when there are antitrust concerns or confidential information that cannot be shared until after the deal closes.

These complex challenges can be effectively addressed by using a transition services agreement (TSA) in which the seller agrees to provide specific services ...