What corrective measures apply to the buyer if the seller is not acting appropriately under the TSA? A seller may have little incentive to work in accordance with the service levels set out in the TSA and its supporting documents after the closure, unless there is explicitly liquidated damage that can be recovered by the buyer – standard compensation cannot provide adequate motivation. In order to ensure the greatest possible applicability, you should consider recouping a trust fund due to poor performance under the TSA (although this may be difficult to negotiate in the major M-A transaction). A global healthcare services company, active in the biopharmaceutical and medical device sectors, has begun the integration of a global division. Integration efforts have spread to more than 70 countries, with different operating structures and the use of several computer systems. The challenge for the company was to ensure a rapid exit from the regional TSA in all regions, while maintaining the continuity of global business. An effective governance structure can help companies quickly assess and resolve ASD issues. It will enable the Director of Integration to make operational decisions consistent with the TSA guidelines. The governance structure is operational at all stages of the TSA – scoop, negotiation and execution – and the right teams should be available to evaluate service level agreements, ASD prices and payments between the two companies. Transition service agreements are common when a large company sells one of its activities or certain non-essential assets to a less demanding buyer or to a newly created company in which management is present, but where the back-office infrastructure has not yet been assembled. They can also be used in carve-outs, in which a large company relocates a split to a separate public company and then provides infrastructure services for a defined period.
Service levels must be defined in the TSA or in the daton documentation with the correct detail so that the parties can understand exactly how the requested services should be provided, without giving contractual “outs” to the seller. Avoid a failure of “reasonable,” “commercially reasonable,” “best business effort” and similar performance standards that could allow the seller to technically work in compliance with the TSA without effectively providing the requested services in a manner that gives the buyer the benefit of his or her bargain. Parties to an ASD must understand whether there is identifiable personal information related to the health insurance system and the liability law, or other sensitive or confidential information used in the services provided. In this case, you should consider appropriate security measures for the buyer and seller, as well as for their respective employees and contractors. A consumer goods company acquired a large spice business, which was separated from its parent company. In order to ensure the continuation of activities during the transition period, ASD services were introduced, but the duration of service was limited to only six months. With the help of KPMG, the company quickly developed a comprehensive TSA program management team and a rigorous governance process with the vendor to facilitate communication, resolve issues and manage change requirements.