ASDs are generated when services initially provided in-house by the seller must now be provided by the buyer (for the seller), since they were provided by the business entity that was transferred to the buyer. The same considerations that apply to ASD also apply to reverse ASDs. Buyers often neglect the reverse TSA and are not prepared for what the seller may also require from the buyer`s services because of the carveout. Internal teams are already overloaded with day-to-day tasks. Launching them into the deal process can be a massive distraction. What some would call multitasking is actually a dilution of focus, which results in fewer optimal results for all parties involved. Regardless of the buy side or the Sell site, a dedicated resource with the right experience can quickly assess risks and requirements. In our experience, the resources involved in both deal teams can be directly involved in a reasonable agreement acceptable to all parties. A diversified industrial company has divested operations in its portfolio. Companies tended to be highly centralized and used a shared service center for back-office, IT, HR and purchasing. Business activity has also brought distribution and manufacturing to market. KPMG was hired to help the client detect links and develop a day 1 operating model for “a typical asset in the portfolio.” This first exercise provided the model for determining what would be expected of a buyer and what the seller would be willing to provide, and specific data elements were collected to help the customer set prices and service levels.
For example, back-office processes have been used to collect KPIs and to establish estimates of the FTEs needed to support processes. The high-level performance calibration allowed the client to determine how long it would take for a buyer to replace services (i.e. outsourcing) and how long the customer would have to reduce lost costs. Volume, duration and SLAs were recorded in service plans that the client used as a starting point for his assignment work. Working with functional teams, the company determined which services it would not provide and which services would be a challenge. The entanglement led to potential actions that the client was willing to take in advance of future restructurings and divestitures. At the end of the year, the client team worked with members of the company`s development team to develop a common understanding of the trade-offs between the various TSA options. Pharmaceutical carve-outs generally include the agreement of three basic agreements, the SPA (sales and sales contract), the MSA (Master Services Agreement, which covers current deliveries from the facility) and the TSA (transitional service delivery agreement). It goes without saying that it is in the interest of both parties to ensure a continuous operation between the signature and the closing, as well as after the conclusion, with a smooth transition from the seller`s activity to the buyer. An ASD is normally agreed upon when the final agreements are signed, but the practical details and issues are only visible when the buyer`s and sellers` operational teams are activated. However, the postponement of detailed discussions on the TSA increases financial and operational risks, and Murphy`s Law is still in ambush. The key to accelerating the TSA is to know what the high-risk elements are going and this important activity is carried out by a team of experts experienced in these operations who can work with the seller and the buyer`s operational teams.
Below is a brief summary of the keys to negotiating a good ASD before the conclusion. Defining the scope of the TSA is the buyer`s most important decision.