Transition Service Agreements (TSAs)
The bridge that lets a divested business keep operating on the seller's systems and staff after close — and the biggest source of both risk and hidden cost.
A Transition Service Agreement is a contract under which the seller continues providing services — IT, payroll, finance, facilities — to the divested business for a defined period after close, typically 6 to 24 months. TSAs exist because most carve-outs cannot stand up independent infrastructure by close date; without one, the deal simply couldn't happen on the agreed timeline.
TSAs are a source of stranded cost on both sides of the table: the seller keeps running systems sized for a business it no longer owns, and the buyer pays TSA fees — often at cost-plus, sometimes above market — for services it doesn't control.
- TSA exit plan
- The workstream and timeline for the buyer to stand up independent capability and formally exit each service line. A TSA without a credible exit plan tends to run long and expensive.
- Service catalog
- The itemized list of services covered — each with its own price, SLA, and exit date. Vague or bundled service catalogs are a common source of post-close disputes.
- Cost-plus pricing
- A common TSA pricing model where the buyer pays the seller's cost plus a margin. Favors the seller if service costs aren't tightly scoped upfront.
Watch out: TSA duration is a negotiated assumption, not a fact, until it's signed. Diligence estimates of stranded IT and Finance costs should always be shown as a range tied to TSA length — every extra month of TSA is an extra month of stranded cost for the seller and dependency risk for the buyer.
Stranded Costs
Fixed costs that don't shrink when a business is divested — the single biggest driver of the gap between headline price and true proceeds.
IT / Technology
Usually the largest and least certain stranded-cost category — ERP separation alone can swing a model by tens of millions.
TSA Negotiation Checklist
What to nail down before signing a Transition Service Agreement, so it doesn't quietly become the most expensive line in the deal.