MRC - Technology M&A Transactions & Transitional Services Agreements (TSA)
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This paper was prepared for an International Bar Association (IBA) Conference in Seoul, Korea in November 2015. Panel discussions focus was carve-outs in technology M&A transactions, technology transition and license agreements IBA Conference: 2015 Mergers & Acquisitions in the Technology Sector: Current Trends in Asia and Beyond (Seoul, Korea)(November 2015)
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MRC - Technology M&A Transactions & Transitional Services Agreements (TSA)
- 2. Introduc.on: • Michael is a senior sourcing lead and IT&T lawyer with 15+ years purchasing experience for global financial services, technology, telecommunica1ons and soQware companies • Michael has been providing procurement, legal and consul1ng services in Asia since 2005 • Michael has worked on, and led, customer, partner and supplier facing technology projects with values up to £300 million © Michael Robertson
- 3. Quick Overview: • What are transi1onal services agreement (TSA)? • What are the drivers for buy side / sell side / supply base and why do you care? • What are some of the traps / issues to consider? • Q&A © Michael Robertson
- 5. • M&A technology transac1ons oQen require the seller to transi1on exis1ng opera1ons, suppliers, goods and services to the buyer for a period of 1me to ensure con1nuity of service at Day 1 • TSA are required whenever an acquirer does not acquire full rights to an essen1al service, process or system (on comple1on) • TSA are essen1ally short-term outsourcing / shared service arrangements and will generally involve mul1ple suppliers from buy & sell side and cover a wide range of technology, back office and other opera1onal areas as well as a variety of goods, equipment and services © Michael Robertson
- 6. TSA Key Terms: – Details of services (what will the seller do) – Length of .me that services or goods will be provided for (how long will seller be on the hook) – Pricing and volumes (these are oQen subject to caps, volume-based pricing and service credits) – Service levels, key personnel transfer provisions & co- opera.on with 3rd party provisions – Performance and transi.on metrics (e g response 1me, error rates, service deficiencies) as well as governance and escala1on (for mul1ple par1es) © Michael Robertson
- 8. • What does the Buyer want? – Integra.on Deal: buyer likely to flick and switch services and suppliers ASAP at lowest cost – New Market / New Offering: buyer wants to preserve, replicate and grow goods, services & supplier base – Con.nuity: Buyers want to ensure on-going con1nuity from Day 1, have flexibility during Y1 (key change period) and ensure that the TSA will be opera1onal for 2-3+ years (1mes vary) – Reduce services risk and cost during transi1on, preserve opera1onal value (Day 1) and enhance flexibility (TOM) © Michael Robertson
- 9. • What does the seller want? – Minimise services, services levels, costs (post transac1on) and mi1gate future risks (i.e the deals done go home) • What doe the suppliers want? – what are the drivers for the supply base and is it a cri1cal element of deal? © Michael Robertson
- 11. Access to SME and Stakeholders with domain / opera.onal knowledge: • Are there sufficient SME with domain / opera1onal knowledge from buy & sell side? Lawyers can help structure a TSA but the “meat in sandwich” is: – Understanding the exis1ng opera1onal model and supply chain of seller – Understanding the TOM and supply chain of buyer • SME with domain & opera1onal knowledge simplify and speed up the TSA nego1a1on process. They circumvent deadlocks, take appropriate risk decisions and drive value and savings © Michael Robertson
- 12. Do you understand the supply base, contracts and key personnel? • What are the sellers and buyers supply arrangements (soQware, hardware, services, equipment, leases, outsource arrangements) • Who are the key personnel that need to transfer or be seconded for a period of 1me: • Did your due diligence cover key suppliers, key personnel and future transi1on plans. • Do you have a an integra1on plan with target cost savings post integra1on. © Michael Robertson
- 15. Factor in regulatory approvals: • Financial services regulators globally (including HKMA & MAS in Asia) are becoming increasingly concerned by outsourcing risks, material subcontractors and customer data transfer. • Even rela1vely small M&A transac1ons and the transi1onal services agreements themselves are likely to require new approvals. The buyer will need to demonstrate knowledge of the full supply chain and steps taken to mi1gate risks for outsourcing. • A full supplier analysis and customer data analysis should be covered as part of the due diligence and a strategy to resolve should be agreed © Michael Robertson
- 16. Avoid delaying resolu.on of key issues: • During M&A transi1on issues are oQen parked or moved to post signing to ensure 1melines are hit, this can cause problems down track as the leverage posi1ons change pre and post signing. • In an ideal world buyer would do a full assessment, due diligence and lock down pricing, services, service levels, nego1ate with the new supply base agree a transi1on strategy and sign contracts for this • If this is not possible M&A team must structure deal to ensure that there is sufficient financial and other leverage to resolve post signing issues © Michael Robertson
- 18. • Pro.vi. - Guide-to-Mergers-Acquisi.ons hhp://www.pro1vi1.com.au/en-US/Documents/Resource-Guides/Guide-to-Mergers-Acquisi1ons-FAQs- Pro1vi1.pdf • Forbes, 20 Key Due Diligence Ac.vi.es In A Merger And Acquisi.on Transac.on hhp://www.forbes.com/sites/allbusiness/2014/12/19/20-key-due-diligence-ac1vi1es-in-a-merger-and- acquisi1on-transac1on/ • DeloiYe, Bea.ng the Odds: How companies can improve value through M&A hhp://www2.deloihe.com/content/dam/Deloihe/us/Documents/mergers-acqisi1ons/us-ma-bea1ng-the- odds-021915.pdf • Strafford, Dra[ing M&A Transi.on Services Agreements: Strategies to Maximize Deal Value and Mi.gate Risk hhp://media.straffordpub.com/products/draQing-m-and-a-transi1on-services-agreements-strategies-to- maximize-deal-value-and-mi1gate-risk-2014-08-14/presenta1on.pdf • Mayer Brown, Services Agreements in M&A Transac.ons hhps://www.mayerbrown.com/files/Publica1on/96c23a96-f00f-42c3-9f70-0c4eeddd16e8/Presenta1on/ Publica1onAhachment/3feb3644-ed8e-4d21-b517-0f80b550740b/10290.pdf © Michael Robertson Further Reading: