When a company sells a division or subsidiary, the new owner often inherits a business still reliant on the seller’s infrastructure. Many buyers assume they can immediately operate independently, but in practice, most acquisitions involve transitional dependencies that can’t be undone overnight. This is where a Transition Services Agreement (TSA) becomes critical.
A TSA acts as a temporary bridge between seller and buyer, allowing essential systems—like IT, payroll, or accounting—to continue functioning while the new owner builds independent capabilities. Done correctly, it ensures a seamless shift. Done poorly, it becomes a costly obstacle that delays autonomy and erodes deal value.
Why Strong Preparation Matters
Research shows that nearly half of corporate carve-outs fail to increase shareholder value within two years, and around one in four actually destroy value. Much of this failure stems from poorly designed or hastily negotiated TSAs. These agreements should not be treated as administrative formalities—they are financial and operational safety nets that determine whether the transition creates or loses value.
Having participated in numerous carve-outs, I’ve seen that the same negotiation errors appear repeatedly. Below are six key mistakes companies make during TSA negotiations—and how to avoid them—followed by one extra insight that often goes overlooked.
Mistake 1: Leaving Service Descriptions Vague
A TSA must outline in precise detail what services the seller will continue to provide. Unfortunately, many deals are rushed to meet closing dates, resulting in documents with broad, unclear service lists. When descriptions are too generic, disputes arise over what’s included, making it difficult to end certain services later.
The best solution is to break down every service into clear categories, describe the scope of work, and document it thoroughly in the agreement schedule. Add a “reference period” to define expected service levels based on pre-sale performance. If certain services aren’t costed yet, require the seller to continue providing them temporarily until proper pricing is agreed. This avoids service disruption while keeping both sides accountable.
Mistake 2: Ignoring Quality and Performance Standards
A TSA isn’t just about keeping things running—it’s about maintaining quality. Once a business is no longer a core part of the parent company, the seller may lose motivation to uphold previous performance standards. Without explicit service-level agreements (SLAs) or key performance indicators (KPIs), the buyer risks deteriorating service quality.
The buyer should negotiate performance benchmarks equal to pre-carve-out standards. Include clauses that allow escalation or financial remedies if performance repeatedly falls short. By treating the TSA like a formal supplier contract, you protect customers, maintain reputation, and preserve deal value during the transition.
Mistake 3: Failing to Align TSA Terms with Separation Plans
Many buyers underestimate how long it takes to build standalone systems—particularly in private equity deals where the business might lack independent functions for finance, IT, or HR. Sellers often push for short TSA durations to close the books quickly, but this can backfire if the buyer’s new systems aren’t ready.
Before agreeing to timelines, ensure your separation team has mapped out all dependencies and has access to key systems and data. Negotiate realistic service periods, even if they appear longer than desired. A slightly extended TSA can reduce costly errors and operational stress, while unrealistic deadlines almost always increase them.
Mistake 4: Accepting Hidden or Inflated TSA Charges
Unexpected fees are a common source of post-deal frustration. Some sellers calculate charges without transparency, rebuilding cost models that differ significantly from historical operating expenses. Others may double-count certain costs, such as shared overheads, that also appear elsewhere.
To prevent this, benchmark TSA fees against the seller’s actual costs for the past six months. Question any material deviations and confirm that all billing stops once services are terminated. Set up a governance framework for invoice reviews and dispute resolution so that payments correspond only to services actively in use. Transparent billing protects both trust and budgets.
Mistake 5: Structuring the TSA Without Flexibility
A rigid TSA can lock the buyer into paying for services long after they’re no longer needed. Because transitions unfold gradually, agreements should allow services to be phased out individually, not only as a full package.
Include flexible exit clauses that allow you to terminate specific services with reasonable notice—typically 30 to 90 days. Establish a clear change-management process to adjust timelines and costs as progress is made. It’s also essential that the seller cooperates with your team when you start engaging new vendors. Without this flexibility, unnecessary costs, conflicts, and delays are almost inevitable.
Mistake 6: Overlooking Employee Movements
Many TSAs only account for employees transferred at the point of sale, but workforces are dynamic. People resign, change roles, or are newly hired after the deal closes. If the TSA doesn’t anticipate these changes, critical processes like payroll, system access, and benefits management can quickly break down.
The seller should be responsible for processing employee data changes—joiners, movers, and leavers—until the buyer’s HR systems are fully functional. This ensures compliance with labor laws, prevents data errors, and maintains security. Explicitly include this in the agreement to avoid costly disruptions or regulatory breaches.
Bonus Oversight: Forgetting Third-Party Consents
A commonly overlooked risk involves the seller’s third-party contracts. After closing, ownership of the carved-out business shifts to the buyer, yet many vital services—such as software licenses, logistics, or telecommunications—still flow through the seller’s vendor relationships.
Without explicit third-party consent, the seller may be legally prohibited from continuing to provide these services, effectively cutting off the buyer overnight. Most TSAs exclude liability for such supplier refusals, leaving the buyer unprotected. To safeguard continuity, require the seller to obtain these consents before closing or within an agreed period post-close. Otherwise, your operational stability could vanish instantly.
The Bigger Picture: Building Independence, Not Dependency
A TSA is meant to serve as a short-term bridge, not a permanent tether. However, rushed negotiations and poorly scoped services often trap buyers in long-term dependencies that are expensive and difficult to unwind. The consequences can include duplicate costs, reduced performance, and delayed autonomy.
To achieve a clean and efficient separation, treat the TSA as a strategic instrument, not an afterthought. Clearly define the scope of services, enforce measurable performance standards, align timelines with the actual readiness of your systems, and build in flexibility to adapt as operations mature. Transparent cost management and proactive handling of employee and supplier transitions are equally essential.
Carve-outs can be complex, but the transition doesn’t have to be painful. With foresight, collaboration, and detailed governance, your TSA can become what it’s meant to be—a functional bridge toward full operational independence rather than a trap that keeps the newly acquired business chained to its past.
Final Take-Home
In every successful carve-out, the quality of the TSA is often the difference between a smooth separation and a prolonged struggle. It’s the unseen scaffolding that holds the business steady as it finds its footing under new ownership. The most effective TSAs are specific, fair, and time-bound—designed to encourage progress, not complacency.
A buyer who anticipates the challenges early, defines responsibilities precisely, and maintains flexibility throughout the transition stands to gain not just a functional business, but one capable of thriving independently. Ultimately, the goal of every carve-out should be freedom—and a well-crafted TSA is the bridge that leads there.
FAQs
Why Are TSAs Important In Carve-Outs?
They prevent operational breakdowns by maintaining systems like payroll, IT, and accounting during the transition period, giving the new owner time to build internal capabilities.
What Happens If A TSA Is Poorly Structured?
A weak TSA can lead to higher costs, unclear responsibilities, missed deadlines, and service disruptions that delay full independence for the buyer.
How Can Vague Service Descriptions Create Problems?
If services aren’t clearly defined, both parties may disagree on what’s included, making it difficult to terminate or adjust certain functions later.
Why Should Performance Standards Be Included?
Without specific performance targets or KPIs, the seller may reduce quality once the business is no longer their priority, risking customer dissatisfaction.
How Can Buyers Avoid Surprise Charges?
Buyers should request transparent cost models that reflect historical expenses and review invoices regularly to ensure they’re paying only for active services.
Why Is Flexibility Important In A TSA?
As the buyer builds its own systems, flexibility allows services to be phased out gradually, avoiding unnecessary costs and lengthy disputes.
How Does Employee Movement Affect The TSA?
If new hires or staff exits aren’t reflected in the TSA, essential processes like payroll or system access may fail, causing compliance issues.
What Is The Risk Of Ignoring Third-Party Consents?
Without vendor approvals, critical services like software or telecoms can be legally cut off, disrupting operations even after ownership has transferred.
How Can Buyers Align The TSA With Separation Plans?
Timelines in the TSA should match the actual readiness of new systems; rushing separation increases errors, while realistic planning ensures smoother independence.
What Should Be Included In Governance Structures?
Clear review processes, cost controls, and escalation procedures should be built into the TSA to maintain accountability and prevent hidden issues.
What Is The Ultimate Goal Of A TSA?
The TSA should serve as a bridge to independence—helping the buyer operate seamlessly while transitioning into a fully self-sufficient business.