Best practice #1: Get the right people in the room
As our examples show, the right negotiators and leaders can change the course of a carve-out. Start early and negotiate the TSA alongside the Asset Purchase Agreement (APA), with leadership from experienced executives who understand how the two agreements work together. Include the operating team, too, since they will be implementing the terms agreed in these contracts.
To set up for a successful implementation phase, assign executive sponsors from both the buyer and the seller to ensure that transition activities are clearly defined and maintained against competing business priorities. Then, establish a separate steering committee of key leaders that will guide the program and resolve execution roadblocks.
Best practice #2: Plan for a phased transition
When it comes to technology and business processes, never try to do everything at once. Rather than planning a “big bang” that migrates all systems simultaneously (or leaving it out of the TSA altogether), reduce your risk with phased release schedules that allow for well-planned, sequential implementations.
The technology transition should be tied to the buyer’s readiness, so allow ample time for establishing a new organizational design, defining accountabilities and training functional teams to support the transition timelines. Limit complexity by making very minimal changes from the seller’s operating environment at first, so that the business can remain focused on serving customers and growing profitability.
Best practice #3: Spell out post-close commitments
You know a TSA has been done well when you see the roles of the seller’s resources defined up front (after all, they’re the key to making any transition happen). For starters, the buyer should have a say in selecting employees who will be transferred, since they will affect the company’s long-term success. Both parties should agree on high-priority positions to be transferred, and the seller should identify several candidates for each one. Then, the buyer should select the best talent from those options—and will need a hiring pitch to win them over.
The seller must also commit to providing appropriate service from its retained employees to support the TSA execution. Create a contract with protections for assigning capable, knowledgeable and available resources, as well as Service Level Agreements (SLAs) that pinpoint acceptable performance and penalties for unacceptable performance. Specify a process for raising performance or other issues if they arise, including the option to go to a third-party mediator if needed. With a well-designed TSA, the buyer and seller both have sufficient skin in the game to follow through on their obligations.
In executing hundreds of carve-outs and acquisitions from both sides of the negotiating table, FCM leaders have seen it all. Building and implementing effective TSAs has even become one of our specialties—and it’s had a huge impact on our clients’ success. The stories of these two sample carve-outs illustrate what we’ve learned above all: that devoting time and attention to the TSA early on will pay dividends later, when it accelerates your transition and puts money back in your pockets.