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.
