Tag archives: transition services agreement

Speed matters: four tactical approaches to speeding up divestitures and maximizing value

With pressure to increase shareholder value from low productivity assets, many companies are exploring the idea of divestures. Yet, a recent article by McKinsey & Company suggests that only 29 percent of divestitures achieve win-win scenarios, whereby both the parent company and divested business achieve excess total returns to shareholders (TRS) following the separation. What stands out about these companies? Speed appears to be the source of their success.

According to a study of major divestitures between 1992 and 2017 by McKinsey, separations completed within 12 months of announcement achieved higher excess TRS than those that took longer. A speedy … Continue Reading

Divestitures: minimizing transition costs and maximizing value

Divestitures present unique challenges that make it difficult for companies to realize full value potential. Even companies with established competency in M&A transactions can struggle to optimize value.

A report from PwC’s Deals Divestiture practice identifies three primary sources of divestiture deal value.

Transaction proceeds

Transaction proceeds are generated from the sale of the divested business (less investment banking, legal, and advisor disbursements). These proceeds are typically the most obvious source of value that companies look to in effort to maximize deal value.

Transition costs

An understanding of transition costs can enhance a company’s negotiating position and serve to avoid … Continue Reading

Transition services agreements: the seller’s perspective

When a business is sold or divested, the seller often enters into a Transition Services Agreement (TSA) with the buyer. TSAs impose obligations on the seller to provide services to the buyer to ensure the acquired business can operate without undue interruption between closing, post-closing, and complete separation. A previous post on this blog discussed key issues the buyer must consider when negotiating a TSA. While these issues remain relevant to the seller, there are additional strategic considerations it should take into account to ensure value is not left on the table.

Accenture published a report identifying six … Continue Reading

Transition services agreements in M&A deals – buyer beware

For years, companies have been increasing profits by outsourcing and engaging third parties to provide business process and information technology services. As well, business units and subsidiaries within companies increasingly integrate systems, share databases and centralize functions to create efficiencies. All of this means that in an M&A deal, it’s important to consider how to address outsourced and shared services before and after the deal closes.

When a business is acquired, many deals will include a transition services agreement (a TSA) to ensure an acquired business can effectively operate during the period between closing and complete separation, and post-closing. … Continue Reading