A transitional service agreement (TSA) is a contract between two parties that outlines the terms of service transition from one party to the other. The TSA is a crucial document in mergers and acquisitions (M&A), as it allows for a smooth transfer of assets, services, and personnel between the two parties involved.
A TSA is typically executed when a company is sold or merged with another company. In such cases, the buyer may not have all the resources required to run the acquired business from day one. This is where a TSA comes in, as the agreement defines the terms and conditions under which the seller agrees to provide transitional services to the buyer for a specified period.
The TSA outlines the scope of services that the seller will provide to the buyer, such as IT systems, human resources, customer service, and technical support. It also includes a timeline for the transfer of services, including a start date, a completion date, and any interim milestones.
The TSA is an essential document as it protects the interests of both parties involved. The seller, for example, may use the agreement to secure its rights to receive compensation for providing transitional services. The buyer, on the other hand, can use the TSA to ensure that the seller provides the required services within the agreed timeframe.
When drafting a TSA, it is essential to ensure that the document is comprehensive and covers all aspects of the transition. The agreement should include the scope of services, timelines, termination clauses, payment terms, warranties, and liability provisions. This ensures that both parties understand their obligations and responsibilities during the transitional period.
In conclusion, a transitional service agreement is a vital document in M&A transactions. It allows for a smooth transition of services, personnel, and assets between the buyer and seller. When drafting a TSA, it is crucial to ensure that the document is comprehensive, covering all aspects of the transition to protect the interests of both parties.