Transition Services Agreement Meaning

TSA versus outsourcing agreementsSowohl TSA and subcontracting typically involve one party providing the other with services that may be essential to the operation of the licensee`s business. However, one of the main differences with regard to ASAs is that the seller (as a service provider) is generally not in the sector of providing these services. In addition, the seller`s IT organization may lack discipline and business processes. Similarly, the level of adjustment of the service under a TSA is generally more limited than in an outsourcing contract, especially when the seller uses the same systems to serve the buyer and the activity retained by the seller. For these reasons, the seller may not be willing to commit to providing tsa services in the same way that it provides similar services to itself. Given the time and resources often required to complete an ASD, the parties should determine at an early stage whether an ASD is warranted. Not all agreements require TSA: the provision relates to the networking of the vendor and the target business, as well as the specific capabilities of each party. For example, will the divestiture lead the buyer to acquire all the assets (systems, service contracts, licenses, etc.) necessary to operate the targeted business (i.e.: The “clean break” scenario? If so, is the buyer confident that he will be able to manage the divested business without the seller`s help? Will the seller also be able to operate its retained activities without the assets or assistance of the divested business? If the answer to these questions is “yes,” ASD may not be necessary. However, when one of the parties needs assets or support from the other party after closing, an TSA is required. Evaluation of the buyer`s requirements. The main task of the buyer at the beginning of the transaction is to evaluate the seller`s responses to the requests described above (through initial meetings with the seller and due diligence questionnaires) so that the buyer has a better idea of the systems and services used to carry out the target transaction.

The buyer should use this information to identify possible overlaps and gaps in its own capabilities and systems. In case of overlap, the buyer should indicate which item overlaps after closing. They can also be used in carve-outs, in which a large company is part of a division in a separate public limited company and then offers the infrastructure services for a defined period of time. The following comments and questions better represent “things to ask yourself”, not “this is what you need to do to have successful ASD” – apart from the fact that all participants should be communicated and that the agreement should of course be very well detailed. Systems and services. The seller must identify the systems and services currently in use to carry out the covered transaction, including those that are critical to the targeted activity.. . . .

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