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What Are Transition Companies?

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  • Written By: Jan Fletcher
  • Edited By: Jessica Seminara
  • Last Modified Date: 10 September 2016
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A transition company facilitates transfer of ownership of a business operation from one entity to another. Sometimes transition companies provide interim management services during the changeover. Firms operating in this industry sector may also assist companies that seek deleveraging — reconciling debt to make them more attractive to potential buyers. Transition companies may also assist in brokering mergers and acquisitions.

One common service provided by a transition company is facilitating the conveyance of real property, as in the sale of a business. The real property that is transferred may include tangible items, like production equipment, or intellectual property, like patents and copyrights. Transition companies broker these transitions, much as a realtor brokers the sale of real estate.

Companies hire transition companies to manage corporate sales, mergers and acquisitions. Employing their services may help companies avoid major stumbles during transfers. These complications may include loss of market share or reputation.

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Sometimes, the services of transition companies may be tapped to manage the spinoff of a subdivision from an existing product line. For example, this may occur if a major software company that produces several lines of software decides to take one of those lines and separate it from other operations, with an eye toward a future sale. Companies that broker the sale or purchase of a business may also manage relationship issues that could arise among staff and management during the transition process. If a Fortune 500 company botches a major change of leadership, as in the case of installing a new chief executive officer (CEO), it may suffer a significant loss of reputation.

A company that attempts to handle a transition internally may have had no previous experience in understanding the potential complications that may occur. Legal blunders and personality clashes of those involved can negatively impact the transition process. Another pitfall that transition companies may help firms avoid is incomplete disclosure. If the buyer does not receive disclosure about a recent decline in orders, or equipment that is reaching the end of expected life, lawsuits may result.

In a changeover of the firm’s CEO, transition services may include recruiting an interim CEO, a chief financial officer (CFO), or a chief operations officer (COO). These three positions are often considered the core of a business' management team. One individual may hold more than one leadership position.

Those working as interim officers for a struggling company, or operation within a company, typically focus on short-term strategies. Once profitable operations are restored, then responsibility for long-term strategies will be handed back to company leadership. The temporary officers will typically employ strategies that seek to better position the company over the long-term to become profitable and to manage risk.

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