Often, the parties enter into what is known as a Service Transition Agreement (TSA) that governs the temporary provision of services to NewCo. Both parties should consider, as soon as possible, whether this is necessary, what the scope is, and how long the TSA relies on the complexity of the transaction. Organizations use ASAs when the company or part of the business is sold to another company. A TSA sketches a plan for the selling company in order to pass control to the buyer. It typically includes critical services such as human resources, information technology, accounting and finance, as well as all relevant infrastructure. ASAs are valid for a set period of time – usually about six months. An effective program governance structure can help companies assess and resolve TSA issues quickly. It will enable the integration officer to make operational decisions consistent with the guiding principles at the ASD program level. The governance structure is operational at all stages of TSA – scoping, negotiation and execution – and the right teams should be in place to assess service level agreements, TSA pricing and payments between the two companies. But no matter how accurate your ASD is, there are two big risks you might not consider: the compliance risk of making false assumptions about the services needed, and the operating costs for service under an ASD. The following comments and questions better represent “things to ask yourself”, not “this is what you need to do to have successful ASD” – apart from the fact that all participants should be communicated and that the agreement should of course be very well detailed. For example, a large car dealership may choose to sell a department to a smaller, emerging car company, and part of its business includes the large car dealership that supports the emerging car company with its HR, IT and accounting divisions for about six months. In theory, ASD is pretty simple, and you`d rightly expect it.
I`ve found over the years that buyers think that all they need in these situations is the transactional side of corporate financing. You`ve never operated in these countries before, so it`s a simple hypothesis. But there is no overview of the legal requirements. A U.S. buyer usually rightly focuses on US-GAAP and writes the TSA with a US GAAP accounting hat. The buyer thinks they are covered, and day 1 of operations arrives, and they will quickly realize that there is more behind. The buyer can easily underestimate the local GAAP needs in newly acquired countries, which can be a very costly mistake. It is up to both the buyer and the seller to reach agreement on some important considerations before the M&A deal is concluded, although the buyer is the one most at stake if things don`t go as planned..
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