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Transition Services Agreements in M&A Carve-Out Transactions: Structuring the Deal, Maximizing Value, Mitigating Risks

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Wednesday, February 14, 2024

Recorded event now available

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This CLE course will prepare deal lawyers and business counsel on best practices for negotiating and structuring transition services agreements (TSAs) in M&A transactions, particularly in carve-out deals when the sale of a business unit is operationally integrated with the rest of the parent company's business. The panel will highlight the key terms that should be included in TSAs and explain negotiating, structuring, and drafting considerations.

Description

The market for carve-out transactions has remained resilient despite relatively muted recent merger and acquisition activity. Carve-outs are among the most complex transactions and are often characterized by a significant measure of interdependence between the business being sold and the other retained businesses of the seller's group, which can add cost and complexity to the transaction and post-closing considerations for both parties.

Careful negotiation and structuring of a TSA is critically important at the inception of the deal, during the negotiation stage prior to closing. Waiting to address these items until the end of the deal can result in delays, reduced value, and increased risk for both buyer and seller. The TSA helps the buyer preserve the value of the newly acquired business and enables the seller to make the deal more attractive.

A reverse TSA may also be necessary in certain transactions where services that were originally performed internally by the seller now need to be performed by the buyer (for the seller) for some duration because these services were being performed by the divested business unit. The same considerations that apply to TSAs also apply to reverse TSAs.

Negotiating the structure of a TSA can involve a laundry list of issues, including provisions or separate schedules addressing (1) responsibility for one-time segregation/separation activities, (2) interim ongoing services to maintain operations of the business, (3) how incumbent third-party services arrangements will be handled during the "transition" period, and (4) related business continuity requirements, audit rights, insurance requirements, data protection obligations, allocation of liability, and dispute resolution.

Listen as our authoritative panel of M&A attorneys examines the key elements of a transition services agreement and discusses primary considerations when negotiating the agreement and terms to consider.

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Outline

  1. Current market conditions and trends in the use of TSAs
  2. Reasons for utilizing a TSA in carve-outs or other types of transactions
  3. Key provisions of a TSA (buyer and seller perspectives)
    1. Liability and indemnities
    2. Performance standards
    3. Scope and pricing
    4. Duration
    5. Data confidentiality and security
    6. Licenses and third-party agreements
    7. Exits
    8. Separation vs. integration
  4. Special considerations with reverse TSAs
  5. Best practices to mitigate risks for buyers and sellers
  6. Key takeaways

Benefits

The panel will address these and other key issues:

  • What is a carve-out transaction and why are TSAs an important part of these deals?
  • What are the key elements that should be negotiated and included in a TSA?
  • What terms should buyers and sellers seek to include in a TSA to mitigate risks?
  • What are other key considerations for negotiating, drafting, and structuring TSAs?

Faculty

Dibbell, Julian
Julian Dibbell
Attorney
Mayer Brown

Mr. Dibbell advises on a range of complex commercial transactions, including those involving IT outsourcing, digital...  |  Read More

Dottori, Mario
Mario F. Dottori
Partner
Pillsbury Winthrop Shaw Pittman

Mr. Dottori advises clients on IT and business process outsourcings and M&A-related transition services. He has...  |  Read More

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