Transition Service Agreements in Carve-Outs: A Sell-Side Guide to Getting It Right

sebandersen
Jun 20
5 min read

In the world of carve-outs, the cleanest deals are rarely the fastest. Buyers want standalone assets, ready to operate on Day 1 without dependencies. Sellers, however, are often carving a business out of complex structures, shared systems, and interlocked functions. The bridge between what the buyer needs and what the seller still owns? That’s where Transition Service Agreements (TSAs) come in.

TSAs are the temporary scaffolding that supports a smooth transfer of operations from seller to buyer. But far from being a simple handover tool, TSAs are a strategic element of deal execution. Done right, they accelerate closing, reduce buyer hesitation, and preserve value. Done poorly, or treated as an afterthought, they create frustration, delay, and post-close risk.

This article outlines how sellers should approach TSAs, not just as a checklist item, but as a strategic asset in the carve-out process.

Why Sellers Should Take the Lead on TSA Planning

Many sellers see TSAs as something to be negotiated only after deal terms are nearly finalized. That’s a mistake. Waiting too long to define which services will be required, and for how long, leaves the buyer guessing, drives up negotiation time, and erodes confidence. Worse, it signals a lack of operational clarity.

From a seller’s perspective, early TSA planning serves two critical purposes.

First, it improves deal certainty. The more confident the buyer is in their ability to run the business post-close, the more likely they are to sign, and the less likely they are to apply discount pressure for perceived execution risk.

Second, it strengthens the seller’s position. When sellers come to the table with a clear set of proposed services, durations, and pricing, they shift the narrative from reactive to proactive. Rather than being cornered into providing whatever the buyer asks for, sellers who lead the TSA discussion shape expectations and control scope.

In essence, good TSA planning is both a negotiation strategy and a buyer-enablement tool. It tells buyers: “We’ve thought this through. We’ve got you covered. And we’ve priced it fairly.”

Spotting Operating Model Gaps Before the Buyer Does

To draft a credible TSA, the seller must first identify what the carved-out business will actually lose once it’s separated.

This means mapping dependencies across the operating model: systems, assets, people, contracts, and processes. These gaps typically fall into six areas:

IT infrastructure and applications: CRM, ERP, hosting environments, email, data storage
Finance and accounting: payroll, accounts payable, treasury, financial reporting
HR and benefits: onboarding, personnel records, health insurance, pensions
Legal and compliance: entity management, regulatory reporting, licenses
Facilities and logistics: warehousing, physical security, mail services
Commercial support: customer service, sales ops, marketing platforms

By walking through each area and asking, “Will the buyer be ready to run this function on Day 1?”, the seller can identify where support will be needed and for how long.

Crucially, this isn’t just a technical exercise. It’s a business conversation. Each identified gap should be assessed based on impact, risk, and ease of separation. Some functions may require only a few weeks of support. Others may need longer ramp-downs or phased exits. The key is realism, not optimism.

How to Describe, Time, and Price TSAs

Once the functional gaps are mapped, sellers must translate them into clear, buyer-ready TSA descriptions. A good TSA schedule includes:

Service description: What exactly is being provided? Be precise. “IT support” is vague. “Tier 1 helpdesk support for SAP from 8am–6pm EST” is actionable
Service standards: Will services be provided at existing SLAs, or a reduced scope? Define performance expectations, response times, and escalation protocols
Timing and duration: Specify start and end dates for each service, and whether there are extension options (and under what conditions)
Exit criteria: When and how can the buyer exit the service early? When does the seller have the right to stop offering it?
Pricing model: Cost-plus, fixed fee, usage-based? Outline the commercial terms and payment schedule. Build in mechanisms for disputes and true-ups

It’s important to remember that buyers often aren’t just looking for cost. They’re looking for predictability. Even if the TSA is priced at a premium, clarity and confidence in delivery are often worth more than a few percentage points on the invoice.

Governance: Managing the TSA Like a Mini Business

TSA execution is where many deals stumble. Not because the services fail, but because the expectations were never clearly managed. Sellers should propose a joint TSA governance model, which might include:

A joint TSA Steering Committee, with escalation paths
Regular service reviews (e.g., bi-weekly), including performance updates
Clear points of contact for each service
A structured issue-tracking mechanism to log, resolve, and escalate disputes

This isn’t just bureaucracy. It’s insurance. Governance helps prevent minor service gaps from becoming major post-close conflicts. It also keeps both sides focused on the end goal: weaning off services in a controlled, collaborative way.

Offering TSAs Isn’t Just Polite. It’s Smart Strategy

In the past, some sellers viewed TSAs as a concession. Something offered begrudgingly and ideally avoided altogether. But in the current M&A environment, that mindset is outdated.

Buyers now expect operational support, especially in complex carve-outs with legacy infrastructure or cross-border elements. Sellers who plan, structure, and communicate TSAs early reduce friction, build credibility, and close faster.

From a strategic standpoint, a well-articulated TSA package helps:

Position the deal more attractively by addressing execution risk upfront
Defuse negotiation tension by showing readiness and transparency
Control cost exposure by shaping the scope before the buyer does
Protect internal resources by setting limits and expectations on what’s offered

In short, TSAs are not a nuisance. They’re part of the deal story and one of the few tools the seller controls entirely.

Final Word: A Clean Exit Starts with a Thoughtful Bridge

TSAs may be temporary, but the way they’re handled leaves a lasting impression. For sellers, they’re a chance to demonstrate operational clarity, build trust, and reduce buyer hesitation.

Rather than treating TSAs as back-end documentation or legal boilerplate, carve-out sellers should approach them like mini service contracts: designed with care, governed with intent, and aligned with both buyer needs and seller realities.

Because the end of your ownership shouldn’t be the start of the buyer’s problems. A well-run TSA is how you prove you’re selling a business and not a burden.

Our Work in This Arena

At ClarityNorth Partners, we work with sellers across sectors to anticipate carve-out complexity, structure smart TSA strategies, and accelerate deal readiness without losing sight of execution.

Whether you're preparing a divestiture, shaping your equity story, or entering exclusivity, we help you define the deal on your terms and deliver clean exits with operational clarity.

Clarity in execution starts with the right conversation. Let’s have it.

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Disclaimer:The information provided in this article is for general informational purposes only and does not constitute legal, financial, or professional advice. ClarityNorth Partners makes no representations or warranties of any kind regarding the accuracy, completeness, or suitability of the information. Readers should consult with their advisors before making any business decisions based on this content.