After depressed energy prices in 2020, oil is up and so is deal making. Buyers—including private equity investors—have been piling into the upstream business again.
But there are enormous execution risks in upstream deals, particularly for PE investors. These buyers typically lack the back-office infrastructure (HR, accounting, IT, etc.) the acquired asset needs to continue operating after being separated from its parent.
As a result, PE buyers have even more at stake than other buyers when negotiating transition services agreements (TSAs) to provide ongoing back-office support after Day 1.
The TSA for IT services—without which the new asset literally cannot function—is arguably one of the most important contracts that buyers must negotiate. Technology typically is the longest TSA and can account for more than half of all TSA costs. Getting the IT TSA wrong can sap value from an otherwise profitable deal.
In this paper, we show how PE buyers can de-risk the transaction by taking charge of IT integration early and negotiating a productive TSA. A properly negotiated TSA not only provides interim IT services to keep the business humming, but also allows buyers time to build or migrate the IT capabilities needed to operate the acquired entity.