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Transition Services Agreement Asset Purchase Agreement

Unknown waters. Typically, when a buyer and seller have signed a non-binding Memorandum of Understanding (LOI) to acquire a carve-out unit through an asset purchase agreement (APA); due diligence completed; and subsequently reached substantial agreement on the main general terms and conditions of sale; One of the most important documents to develop is a transition services agreement. Whenever a seller wants to drop a non-strategic business unit, division, facility, product line, etc., the buyer must literally “extract” the asset to be divested from the remaining organization, systems, processes, applications, and often a highly complex and interconnected shared services environment. After the conclusion, systems, applications, services or processes that the buyer cannot lift and run smoothly immediately after the transfer of ownership, the buyer usually buys these services from the seller for a certain period of time. Unfortunately, the devil is always in the details and SAs usually infest both buyers and sellers. While buyers typically want very detailed and specific TSAs by function, sub-function, system, process, and service, all tailored to the postage costs and defined time periods, sellers often want the opposite. Dynamics and conflicts are often difficult, because the gap between what the buyer thought and what the seller will actually provide is as stark as the Grand Canyon. One client, a highly developed global acquirer, recently commented, “We started our TSA as best friends and business partners, but we are quickly getting involved in open trench warfare.” The following comments and questions better represent “things to ask yourself”, not “this is what you need to do to have successful ASD” – apart from the fact that all participants should be communicated and that the agreement should of course be very well detailed. But our situation was even more difficult than the norm. Both of the company`s development teams were frequent acquirers, but neither had direct experience with a carve-out asset purchase or TSA. The vendor`s operating model was highly centralized, with extensive and sophisticated shared services and a high level of process automation and staff self-service.

That of the buyer? Let`s say it was the polar opposite. As a result, we were able to predict the likely need for ASD in the very long term. In addition, so much time passed to access the main business terms that there was enormous pressure from the buyer`s management team to quickly close a deal. Unfortunately, the seller suddenly became cautious and slowed down the process again, as he evaluated potentially overlapping customer contracts between the industry to be sold and the seller`s main customers, the corporate customers. At a party dinner at a recent customer engagement, the vice president of corporate development leaned over the table and asked as if whispering a piece of action advice: “What`s the fastest thing you`ve ever developed on a transition services agreement (TSA)?” It was neither a trick nor a joke. He was deadly, and frankly, he was stuck between the proverbial rock and a hard place. Your agreement lasted for weeks, while imposing very complex terms of agreement. When the breakthrough came, they got caught flat. The only thing that is worse than not having a concluded and mutually agreed EBA for the conclusion would be to try to negotiate once completed! So we got to work..

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