Why M&A Success Is Decided During the Transition Period, Not at Closing

The success of an asset deal or share deal is determined by the transition period — not the SPA. A practical guide to TSA, contract assignments and key person retention.

Yrityskaupan asiakirjat (FI)

The day after closing, advisors are often already neck-deep in the next transaction. Meanwhile, someone is sitting in the office figuring out the new business ID, chasing acknowledgements on contract assignment notices, or wondering why the lead developer dropped a resignation letter the night before. The success of an M&A transaction is rarely decided in the clauses of the SPA — and almost always in how the transition period is built.

1. Why choose an asset deal over a share deal

An M&A transaction is structured either as a share deal (Share Purchase Agreement, SPA) or an asset deal (Asset Purchase Agreement, APA). In a share purchase agreement, the buyer acquires the target company's shares — the assets, liabilities and contracts stay inside the company, only the owner changes. In an asset purchase agreement, the buyer acquires the specific assets, rights and obligations identified in the agreement, and the target company itself remains with the seller.

Asset deals are chosen when the buyer wants control over what transfers. Typical drivers:

• Scope. A single business unit out of a group, or a clean customer base without legacy inventory.

• Liabilities. The buyer only assumes the debts explicitly transferred in the APA. Important exceptions apply under Finnish law, notably the Employment Contracts Act (TSL 55/2001) and the Environmental Protection Act (YSL 527/2014).

• Taxation. Step-up in the depreciation base (fair value + goodwill) and VAT treatment typically favour the buyer in an asset deal; share deals are often more tax-efficient for the seller.

• Serial acquisitions. A standardised contract template is a prerequisite for a buy-and-build strategy.

• Financing. Vendor loan, earn-out and equity rollover often drive the structural choice at least as much as taxation does.

2. Document architecture in an M&A transaction

The document package is built around the APA. Its core clauses are well-established — representations and warranties (R&W), limitations of liability (cap, basket, de minimis, survival), indemnities for identified risks, the price mechanism (locked box or completion accounts), MAC clause, and non-compete and non-solicit covenants. The actual substance of the deal is detailed in the schedules: transferring assets, contracts, employment relationships, and excluded assets.

Around the APA, three ancillary packages determine whether the deal succeeds:

1. Transition arrangements — transition services agreement (TSA), consulting agreements, exit assistance.

2. Contract assignment in M&A — consents, notifications, back-to-back arrangements.

3. People arrangements — retention, management agreements, equity rollover, earn-out.

   
   

The classic mistake is that some detail ends up included or excluded by accident — a single critical licence, a shared counterparty, or an employee whose role wasn't visible in the DD data room. Systematic use of checklists is the only reliable safeguard. Effort must be scaled to deal size — a sub-€2M bolt-on does not need a PE-grade mechanism package.

3. Transition Services Agreement (TSA) and consulting

After closing, the transition period begins — the phase in which customers, contracts, systems, suppliers and know-how actually move to the buyer. The two key legal tools are the transition services agreement and the transition consulting agreement.

A TSA is activated at closing and covers everything that couldn't be handled between signing and closing — parallel system use, unfinished contract assignments, customer and supplier communication, and operational tidying up. Sizing varies dramatically:

• Small deal: a 1–2 page schedule to the APA, e.g. seller assists with invoicing for 30 days.

• Mid-sized deal: a 5–15 page standalone agreement, term 2–6 months.

• Large carve-out: a 20–50 page agreement with annexes — SLAs, monthly service reporting, dependency matrix, exit assistance, IP licences for the transition, and governance (steering committee, escalation matrix). Total durations typically land in the 6–24 month range; market benchmarks for IT infrastructure and ERP point to 10–12 months.

TSA complexity tracks system dependency. The skeleton should be drafted at signing, not as closing approaches — once the purchase price has been paid, the seller's appetite for committing to service levels drops sharply.

A transition consulting agreement is a contract between the seller's owner (or a key person) and the buyer, under which they continue as a consultant or executive for a defined term, typically 6–24 months. The agreement is often linked to the earn-out or retention package, so the payment path and the obligation to stay move in lockstep.

4. Contract assignment in M&A

Transferring the contract base is operationally the heaviest part of an asset deal, because contracts do not transfer by operation of law (employment relationships aside). Under Finnish contract law, a change of counterparty requires the other party's consent unless the contract states otherwise.

Contract assignment in M&A breaks down into three buckets:

1. Consent-required contracts — written consent must be obtained (major customer contracts, licences, key supplier agreements).

2. Notice-required contracts — assignable by notification under law or contractual terms.

3. Restricted or non-assignable contracts — must be identified during due diligence. Non-assignability of a critical contract can be a deal-breaker or force a back-to-back structure.

A back-to-back arrangement is the standard solution for non-assignable contracts: the seller remains the formal counterparty and the buyer acts as the seller's sub-contractor. The actual performance and economic risk shift to the buyer through a sub-contracting agreement, while the customer-facing contract stays unchanged. The structure is operationally heavy and ties the seller to the deal after closing, so it should remain temporary and be replaced with customer consents as soon as possible.

A terminology note: change-of-control clauses are typically triggered in share deals, where ownership of the target changes but contracts remain in the company's name. In asset deals, the relevant provision is usually the assignment clause (anti-assignment clause). During DD, every material contract's assignment and consent terms should be reviewed — and for share deal scenarios, also the CoC clause.

5. Key person retention and management incentives

Employment relationships transfer largely by operation of law where the deal qualifies as a transfer of undertaking — i.e. the transfer of a functional entity that retains its identity. Owners and other non-employee key people do not transfer by law, and yet they are usually the people the deal's practical success depends on. Management incentives are therefore one of the most critical elements of the transaction.

Typical retention and incentive mechanisms:

• Retention bonuses. Paid for staying with the company for a defined period — internationally usually 12–18 months, in Finland often longer at 24–36 months when an earn-out or integration dependency is involved.

• Fixed-term management or consulting agreements.

• Equity rollover. The seller reinvests part of the purchase price into the buyer's entity. This binds the seller because the upside depends on their own contribution. The traditional range is 5–25% of the purchase price; current trends point upward.

• Earn-out in M&A. Part of the purchase price is paid based on future performance. According to the SRS Acquiom 2025 Deal Terms Study (over 2,200 deals), earn-outs pay out on average around 21 cents on every dollar; in deals where the earn-out at least partially pays out, the average is roughly half of the maximum.

Rule of thumb: the better the key people are retained, the lighter the TSA can be.

• Key people stay long-term → the transition services agreement can be minimal; knowledge transfer happens through the employment relationship.

• Key people leave (or stay only briefly) → the TSA becomes mandatory and heavy: everything in the departing owner's head must be documented, system access must be defined in detail, and the knowledge transfer process must be built at the contractual level.

This is one reason private equity sponsors typically build a significant rollover and earn-out package for selling owners. Beyond financing the deal and sharing risk, it materially reduces the legal and operational burden of the transition period.

Conclusion

An M&A transaction does not end at signing, and in most cases not at closing either. Success is decided by how the signing-to-closing preparation phase is run, and how the transition period that follows is built — how contracts, systems, people and customers manage to switch sides without breaks.

The transition period toolkit has three parts: transition services agreement, transition consulting, and key person retention. A good advisor knows how to pick the right combination for each deal — not the largest possible package.

This article is a general overview and does not replace case-specific legal advice.

If you need support with M&A transactions or their transition periods in Finland, contact Legaunsel or Lauri Nieminen.