Faster divestitures through Transition Service Agreements (TSAs)

COVID-19 pushed many businesses into a period of unprecedented uncertainty, resulting in increased operational costs, and decreased funding and market opportunities. Deal activity was also muted as companies and private equity funds adopted a cautious approach. As the world slowly emerged from the impact of the pandemic, the M&A deal space recovered; overall deal values increased by 45 percent in India in 2021.
Divestiture activities too continued the upward trend with rising needs for
cash and restructuring, reaching US$26B overall in 2021. Additionally, during COVID-19, private equity firms had amassed unused funds and were waiting for the right opportunities. These elements across the ecosystem have created the right conditions for several businesses to restructure themselves. As a result, businesses are expected to stay focused on selling off non-core assets and performing portfolio reallocation through divestitures. Though the deal space for divestitures looks promising, organisations will typically find that a divestiture involves executing a multitude of complex activities, for which they may not have the requisite experience within their teams.

This paper provides details of a frequently used instrument used to overcome some of that complexity. The instrument also helps set up the divested entity and continue with business as usual, even after separating from its parent.