In an asset purchase transaction, “transition services” refer to the idea that, as part of the deal, the seller agrees, post-sale-consummation, to help the buyer with some aspect of the transaction. This might entail helping the buyer integrate some newly acquired asset into the buyer’s business operations or training the buyer’s staff/employees on use, etc. Such transition services are set forth in an agreement often called a Transition Service Agreement (“TSA”). A TSA sets out several key features, including:
- Services to be provided
- Length of time for the services
- Payment
- Potential extensions
- Personnel who have agreed to render the services
- (Often) exclusions of personnel
- Confidentiality and non-compete provisions
- And more
A very basic TSA provision might read like this:
“Transition Services. Seller agrees to provide transition services to Buyers related to software integration as described on Exhibits A-1 through A-8 hereto (the “Transition Services”). During the Transition Period, as defined herein, and subject to the terms and conditions of this Agreement, Seller shall cause [specifically defined PERSONNEL, COMPANY, THIRD-PARTY CONSULTANT, ETC.], who have historically engaged in software-related services for Seller, to provide to Buyers the Transition Services in the manner, at the time, and for the compensation stated herein; provided that to the extent that Buyers identify any additional services necessary for Buyers to conduct their businesses during the Transition Period, the Parties shall negotiate in good faith the provision of such additional services. In no event shall any of the Services include any services of [PERSONS, COMPANY].”
As this sample provision shows, there are many issues to consider with a TSA. First, from whom are the services needed? The services might be needed from a person or a group of the Seller’s staff, from an affiliate company of the Seller, or from some third party. Obviously, a TSA must be tailored to fit the circumstances. Another obvious point is that the transitional services providers must independently agree to provide the services. So, a TSA is going to be a three-way contract (at least).
The length of a TSA is often a function of the extent and complexity of the transition services that are desired. Where the term is brief, and the expected services are minimal, a TSA can be short and to the point. This is also true where the expected services are “to-be-determined-an-as-needed.” That is, some TSAs are contracts that allow the buyer to call for help if needed. Where the services are more complex, the TSAs would likely be lengthy and the above same provision would be significantly expanded.
Whatever the length, there are generally a number of other key provisions included. One set of provisions will relate to the issue of control over the assets and control over business policies. For example, it is common to have provisions making it clear that the service providers will have no control over or management of the assets in question, will have no management or policy decision-making authority, and will have no right to direct or control buyer’s employees, staff, contractors, etc.
Likewise, provisions related to real estate are common, providing that access given to a transition service provider to a facility is not to be deemed as a conveyance or the right to occupy the space.
Equally as important, buyers do not want the transition service personnel to be deemed employees of the buyer. So, provisions are drafted that provide that the buyer has no control over or responsibility for the employees, contractors, or staffing of the transition service providers.
Contact the Business Attorneys st Revision Legal For more information, contact the experienced Business Lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.
