Transition Services Agreement Issues

When a company undergoes a merger or acquisition, there are many aspects that must be addressed in order to ensure a smooth transition. One of these aspects is the Transition Services Agreement (TSA). This is a contract that outlines the services and support that the seller will provide to the buyer during the transition period, which typically lasts from 30 to 180 days. While these agreements are meant to facilitate a seamless transition, there are several issues that can arise.

One of the primary concerns with TSAs is scope creep. This occurs when the services and support outlined in the agreement expand beyond what was originally intended. This can create confusion and delay the integration process. To avoid scope creep, it is important to clearly define the scope of the TSA and to establish checkpoints throughout the transition period to ensure that everyone is on the same page.

Another issue that can arise with TSAs is the quality of the services provided. The seller may be obligated to provide certain services, but if those services are not performed to the expected level of quality, it can cause problems for the buyer. To mitigate this risk, it is important to include performance metrics in the TSA and to have penalties in place for underperformance.

Timing is also an important consideration when it comes to TSAs. The transition period can be a hectic time, and it may be difficult for the seller to provide the necessary services within the agreed upon timeframe. Similarly, the buyer may not be able to integrate the acquired company as quickly as anticipated. To avoid these timing issues, it is important to establish realistic timelines and to include provisions for extensions if necessary.

Finally, it is important to consider the cost of the TSA. The seller will typically charge for the services provided during the transition period, and those costs can add up quickly. To avoid unexpected expenses, it is important to negotiate the cost of the TSA upfront and to ensure that there are no hidden fees.

In conclusion, TSAs are an important aspect of any merger or acquisition, but there are several key issues that must be addressed in order to ensure a smooth transition. By clearly defining the scope of the TSA, establishing performance metrics and realistic timelines, and negotiating the cost upfront, companies can avoid many of the challenges associated with transition services agreements.

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This post was written by thavranek