When a company is sold in an M&A transaction and the seller is expected to continue to provide services to support the post-closing company, the parties to the transaction enter into a transition services agreement (TSA), which governs the provision of such services to the post-closing company. Depending upon the complexity of the transition services arrangement and the criticality of the services being provided, TSAs can range from short, back-office administration services agreements with an agreement to set fees in the future and no formal performance standards, to comprehensive service agreements with a defined scope, service levels, variable fee arrangements, and detailed data security and privacy provisions.
In every M&A transaction that has a transition services component, it is incumbent upon both buyer and seller to arrive at an agreement on certain key considerations prior to the closing of the M&A transaction. These considerations should be negotiated by the parties to the TSA as early in the process as possible, ideally during the due diligence phase. Set forth below are key issues to consider when negotiating and drafting a TSA.
