Transition Services Agreement
(Spin-Offs/Equity Carve-Outs)

Summary

This transition services agreement (TSA) contemplates bilateral provision of services on a transitional basis between a parent and subsidiary in the context of either an equity carve-out or a spin-off transaction. This template includes practical guidance, drafting notes, and alternate clauses. This template designates parties as "providers" and "recipients," based on who provides any given service, and sets forth all services to be provided, and the particulars of such provision, in a comprehensive schedule. The "Master Services Schedule" defined within this agreement specifies the pricing, frequency, quantity, duration, performance standards, specific termination conditions, and renewal rights. The Master Services Schedule will vary greatly based upon the particulars of a transaction, and each party should independently assess the business and tax effects of the services to be provided. When drafting TSAs in the context of equity carve-outs or spin-offs, it is advisable to allow for more flexibility in changing the terms of the arrangement than in TSAs between unrelated parties, since parent will either continue to own a stake in the spin-off subsidiary after the transaction or will otherwise have an interest in ensuring that spin-off subsidiary succeeds as an independent entity. It is advisable, in a TSA in an equity carve-out or a spin-off, for administrative services to generally have a term of no longer than 24 months and be priced on a cost or cost-plus basis. Operational or commercial services can be longer-term but terms should be arms' length. Click here to see recent spin-off or demerger deals in Market Standards, the searchable database of publicly filed M&A deals from Practical Guidance that enables users to search, compare, and analyze its comprehensive database of transactions using over 150 detailed deal points to filter search results. You can customize this search to your needs by adding filters or modifying the search criteria. For more information on Market Standards, click here. For additional guidance on ancillary agreements and transaction structures, see: • Ancillary Agreements in M&A Transactions Resource Kit • Private Merger Transaction Resource Kit • Public Merger Transaction Resource Kit • Stock Acquisition Resource Kit • Divestitures of Divisions and Subsidiaries Resource Kit • Divesting Assets and Businesses