Transitional services agreements (TSAs) are an essential
part of a carve-out deal. They clearly define the expectations and
agreed protocols between the buyer and seller during the critical
period of business transition and govern the seller's temporary
provision of services to the new company. It is therefore crucial
that both buyer and seller are in alignment prior to the TSA
commencing with as little uncertainty in the coverage of the TSA as
possible. A poorly crafted TSA can turn an otherwise favourable
deal sour.
Companies usually carve out — or sell — a division
of their business when it no longer aligns with their current
business strategy. The carved-out segment is therefore typically a
fraction of the size of its former parent company and does not have
its own independent operational framework. The primary function of
the TSA is to provide a grace period that allows the new company to
operate while a new and independent framework is established.
