Insight

How to create value with transition services agreements (TSAs)

"Value TSAs” allow buyers and sellers to pursue strategic opportunities during the TSA period.

Steve Sapletal

Steve Sapletal

Principal, Advisory, Strategy, KPMG US

+1 612-708-2556

David D. Delgado-Dalmau

David D. Delgado-Dalmau

Advisory Managing Director, Strategy, KPMG US

+1 469-387-0951

Didzis Ozols

Didzis Ozols

Advisory Managing Director, Strategy, KPMG US

+1 646-992-0805

Geoff Orland

Geoff Orland

Director Advisory, Strategy, KPMG US

+1 708-308-4285

By the time deal teams are negotiating transition services agreements (TSAs), they often are already focusing on closing and moving on. TSAs are generally regarded as ways to provide temporary support to critical functions that the acquirer is not ready to take on, such as IT and supply chain management, and these agreements may seem like just an item to check off.

However, this fast-tracked, unplanned approach generally misses opportunities to secure value in the future. Not only should TSAs be regarded as an integral part of the overall deal negotiation and value calculation but also as a chance for both buyers and sellers to pursue strategic goals during the TSA period, such as creating new systems to support growth.

In this paper, we introduce the idea of the “value TSA”—an emerging best practice that market-leading companies are using. By treating the TSA as a strategic opportunity and carefully negotiating it for mutual benefit, these companies have shown that they can create value from TSAs, avoid costly pitfalls, and transform capabilities and processes for greater future success.

Negotiating a value TSA

Understanding and aligning buyer and seller priorities is key to helping maximize TSA value for both parties. Here are some major considerations to be assessed to achieve additional value from TSAs.

Scope

Value TSA considerations

Think beyond “keeping the lights on."

Buyer

Be tactical, yet broad, in support needed to ensure full business continuity.

Seller

Ensure divested asset has the necessary services supported to operate under TSA, minimizing any stranded costs. Be open to service level changes if requested.

Duration

Value TSA considerations

Be flexible and open-minded to potential longer-term agreements.

Buyer

Plan backwards from TSA exit. Look for longer-term opportunities outside of TSA.

Seller

Work with buyer to understand its needs while maintaining aggressive realism for TSA exit.

Handover

Value TSA considerations

Don’t just hand over and pick up from where things are left, but rather hand over and pick up transformed.

Buyer

Build the post-TSA vision and steps to achieve. Maximize TSA handover for relevant, useful information for the new environment.

Seller

Understand and support, where possible, buyer plans for post-TSA. Ensure scope of handover is defined and negotiate for additional services.

Service level

Value TSA considerations

Commit and expect to do better and achieve a fit-for-purpose operation. Service levels are not stationary, they evolve.

Buyer

Set up mandatory service levels (i.e., same as prior three months) with focus on buyer/seller collaboration to achieve as TSA period evolves.

Seller

Define realistic service levels for support while ensuring seller ongoing business continuity. What stranded costs may be incurred based on service levels? How can we best accommodate buyer transformational needs?

Cost

Value TSA considerations

Think long-term to not only avoid unnecessary costs but also to achieve a leaner fit-for-purpose target.

Buyer

Optimize TSA service pricing vs. replacement costs, utilizing the TSA period to best maximize cost savings at TSA exit.

Seller

TSAs are not meant to be profit drivers. Cost appropriately in short term leveraging cost as a tool to coax buyer TSA exit.


This paper shares lessons learned from extensive work with clients in crafting and executing value TSAs and it discusses the various ways in which companies can use them to generate real value.