TSA Transition Service Agreement

TSA Agreement in Business

TSA agreements or transitional service agreements are service agreements completed between a buyer and seller where the seller provides infrastructure support to the buyer as a result of their new establishment.

TSA deals are very common with buyers that lack the proper systems to to absorb acquisition. This is the most common scenario for transitional service agreements. Some of the most common infrastructure support given to buyers are HR, IT and accounting services. These services are needed in order to run a successful business infrastructure. The seller can offer the buyer these services for a fee. These types of business deals are very common in the event a large company sells a division to a less established buyer. In these types of situations, the senior managements of the buyer is in place, however the technical details of infrastructure may be lacking. This is the most common scenario for transitional service agreements, Transitional service agreements have their pros and cons, however they are a reliable and viable option for business transactions.

Transitional service agreements are also commonly utilized during “carve-outs,” Carve outs are when a large enterprise or company separates from the division and operates as a separate public company. They proceed to offer infrastructure services for a specific period of time. Transitional service agreements are often classified as difficult to manage. The main reason for this is due to their terms. For example, in order to properly manage transitional service agreements, they must be properly defined. Properly defining TSAs can help to ensure they are successful for all individuals involved. If a TSA is not drafted with the right terms, disputes between sellers and buyers are likely to occur. The disputes revolve around the services that were alleged to be provided.

TSA agreements are structured in order to benefit both parties involved. The seller can offer their services for a fee. Offering the infrastructure services such as IT, HR and accounting for a fee, both parties receive a benefit. The buyer receives a benefit as they are able to receive a good value on infrastructure services. Defining the services that are set to take place is a great way to avoid future issue or conflict between buyer and seller. Some of the transitional service agreements are short-term. These type of agreements are done out of necessity or convenience. The seller has certain limitations of access to the buyer’s information. This is very important to note as the buyer is relying upon the seller in some capacity to help with infrastructure services.

These services are very important to the overall success of a buyer’s business model. The deal must always be clearly and carefully constructed. The duration of agreements is also important to outline. By outlining the duration of the agreement, both parties understand when it will begin and when it will end. Specifics regarding renewal can also be discussed when the TSA is being drafted. This is the best way to ensure a successful and well-working business relationship with the other parties involved in the agreement.