As the volume of merger transactions continues to be large and many transactions are being closed in a relatively short time frame, transition service agreements (TSAs) are being used more frequently. A TSA is an agreement that allows for a transition of the seller’s operations after the closing, by setting a period of time that the seller will continue to operate the business for the benefit of the purchaser. Typical services provided by the seller during the transition period include warehousing, shipping and invoicing. The need for the TSA often arises because one or both parties need to close faster than time will allow for the business to be transitioned before closing. TSAs can be used in all sizes of transactions and between purchasers and sellers of different sizes. For example, in a transaction I worked on this past summer, the largest global player its industry acquired a small local business and requested that the local business provide transition services. In an ongoing transaction, a local company I am working with is negotiating to purchase an international brand of consumer products and is negotiating a TSA with the international seller of the brand. Many important details need to be worked out in a TSA, including the flow of money, the compensation that the seller will receive for the transition services, if any, and insurance. But if a business sale needs to close quickly, a TSA can be a valuable tool.
ABOUT GLENN D. SOLOMON
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Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.
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