Transition Service Agreements(TSA’s) are often an integral part of asset-based M&A transactions. If the seller is expected to continue to provide services to support the post-closing company, the parties to the transaction enter into a Transition Services Agreement. TSA’s can range from short, back-office administration services agreements to comprehensive service agreements. Whichever is the case, while they’re designed to solve problems with the transfer of ownership post-close, they often become a sticking point in a negotiation and can even lead to deals being lost.
When the assets include employee headcount, things can become tricky if the buyer does not acquire the sellers’ business identity, business entities, or the infrastructure to manage the ongoing employee responsibilities including things like employee benefits plans, payroll processing and pre-agreed employment contracts.
There are many considerations whilst waiting for the deal to close especially if the employees are part of an international workforce. The choices are:
1. Set up entities in all the countries where the business will be operational or
2. Keep the employees on the sellers’ payroll for a certain time?
Setting up entities prior to closing the deal is not a cost-effective solution as there are many labour-intensive factors to manage from HR and Payroll, Tax and Compliance to Banking and Professional Insurances. A TSA can be a short-term or ongoing solution to keep employees on the sellers’ benefits and payroll plans until the buyer establishes their in-country entities, if the seller is happy to keep employees on their books after divesting those assets.
Portas Global can provide an agile, cost effective and time critical solution to the seller and buyer. By becoming the Employer of Record, we can quickly and compliantly onboard the employees by providing employment contracts in the country where they will be working. More importantly, we will ensure that all regulations, such as TUPE, are observed as that is an important legal requirement.
Throughout the entire engagement process the Portas Global client (the buyer) maintains full operational control and management of the employees.
Payroll processing is often a source of strain on deal negotiations as employee’s expectations of continuity, job security, compliance and the payroll process are paramount to the successful transition of the workforce. Considering a Global PEO with the ability to service client needs in multiple locations should be included in the due diligence stage to help simplify negotiations and post close migration of employees.
The result can be a cleaner deal, simplified negotiations and reduced time to close. A solution via Portas Global allows the buyer time to make considered long term decisions regarding their new employees and other assets without worrying about TSA stipulations or HR compliance tasks in the local or international operations.