Vendor contracts set the cost base.

The vendor contract inventory.

The first task is the inventory. Every vendor contract that supports the carve-out perimeter is listed. Software licenses, hosting and cloud, managed services, telecom, outsourcing, materials, professional services, facilities, banking, and insurance all sit inside the inventory. A typical mid-market carve-out has 300 to 600 contracts. The seller's procurement function is the starting point but rarely has the complete picture.

Each contract is coded with the same dimensions. Counterparty, annual spend, contract end date, assignment clause type, criticality to Day One operations, and the change of control trigger if present. The criticality coding is what drives the work plan. A payroll provider, an ERP host, and a cyber security vendor are critical. A niche analytics tool with quarterly usage is not.

The disciplined buyer also identifies the contracts that are bundled into a parent agreement at the seller's level. These contracts often cannot be assigned to Newco at all because Newco is not a permitted user under the master. The contract must be replaced with a Newco specific agreement. The work overlaps with the broader TSA third-party vendor consents approach.

Assignment, novation, or new contract.

Three legal paths exist. Assignment moves the contract to Newco unchanged. Novation replaces the contract with a new agreement on the same terms. A new contract resets the commercial relationship. The choice is partly legal and partly tactical. Vendors prefer new contracts because each new contract is a chance to reprice. Buyers prefer assignment because the existing pricing survives.

The right approach is contract by contract. For the top 20 vendors by spend, the path is usually negotiated as a package. The disciplined buyer brings a structured proposal. Assign the existing terms for the term remaining. Lock in the volume discount tier earned by the parent. Defer the next renewal to a date that gives Newco time to integrate the vendor into its own procurement process.

The long tail is a different problem. The transactional volume is high and the per contract value is low. The disciplined approach is a standard template assignment letter, sent in batch through the seller's procurement team, with a defined response window. Contracts that do not respond within the window are flagged for follow up and escalation.

The MFN and volume discount risk.

The largest commercial risk in vendor assignment is the loss of parent scale benefits. The carve-out unit was a small share of the parent's total spend with most vendors. The parent had volume discounts, most favored nation clauses, and bundled pricing that reflected the total spend. Newco at smaller scale does not inherit those benefits automatically.

The disciplined buyer prices this loss in diligence. The benchmark price for each major vendor at Newco's standalone scale is established. The gap between the inherited price and the standalone price is the carve-out cost uplift on that line. For technology vendors, the uplift can be 20 to 50 percent. For telecom and cloud, the uplift can be 10 to 25 percent. For low margin commodities, the uplift is usually small.

Two mitigations exist. First, lock in the inherited pricing for a defined term as part of the assignment. Most vendors will accept this for a year or two in exchange for the relationship. Second, plan the renegotiation for the renewal moment with a structured process. The mitigation overlaps with the broader pattern of carve-out stranded costs management.

Software, hosting, and managed service contracts.

The most expensive contract category in most carve-outs is the IT vendor stack. ERP, CRM, HCM, cloud, security, and managed services together can run 60 to 80 percent of the vendor budget. Each of these contracts has specific assignment mechanics.

ERP and CRM vendors usually allow assignment with consent. The consent process is administrative for smaller vendors and commercial for the major platforms. Hosting and cloud providers operate on enterprise agreements that may or may not be assignable. The disciplined buyer reads the cloud agreement carefully because the underlying tenant structure may require a fresh contract regardless of the assignment clause.

Managed service contracts are often the most operationally critical. A managed network services contract, a security operations center contract, or an IT helpdesk contract supports Day One operations directly. The assignment of these contracts has to happen at closing, not weeks later. The disciplined buyer treats these as critical path items and assigns them ahead of the long tail. The pattern overlaps with the broader carve-out IT separation playbook.

The consent campaign and timing.

The vendor consent campaign runs from signing to Day One plus 90 days. Day One is the trigger date. The pre Day One work focuses on the critical contracts. Each critical vendor receives a senior commercial conversation with the seller's procurement leader and Newco's incoming leader. The conversation surfaces concerns, builds rapport, and sets the path for the formal assignment.

The formal assignment paperwork is prepared by the seller's legal team using a standard template. The template is approved by the buyer in advance. The seller's procurement team drives the outreach. Newco's incoming procurement leader joins for the larger vendors. The seller's commitment to drive the campaign is captured in the TSA as a defined assistance clause.

Tracking is weekly. A simple dashboard reports the count of contracts in each status. Contracts pending outreach. Contracts under negotiation. Contracts assigned. Contracts replaced with new agreements. Contracts in dispute or refused. The data drives the buyer's operating partner view of the cost base on Day One and beyond. The pattern overlaps with the broader Day One customer and vendor communication approach.

Day One operating continuity.

Operating continuity on Day One requires that the contracts Newco depends on actually work in Newco's name. A vendor that has not received the assignment paperwork may continue to invoice the seller. The seller passes the invoice to Newco through the TSA. The mechanism works but at a cost. The TSA carries a pass-through markup, the seller's accounts payable team is in the middle, and the vendor relationship sits with the seller rather than Newco.

The disciplined buyer plans the unconsented contracts explicitly. A small reserve of TSA capacity is set aside for vendor pass-through during the consent campaign. The reserve is sized to the expected volume of unconsented contracts in the first 60 days. Without the reserve, the TSA fee schedule does not match the operating reality and the operating partner is fighting fires in the first 90 days.

The exit from this state is a hard cutover. By Day 90, every critical vendor should be assigned or replaced. By Day 180, every vendor in the top 80 percent of spend should be consented. The long tail can ride the TSA further if the cost is small. Specialist support on this work is part of the Day One Readiness Program when the buyer needs the discipline applied at scale.

More on carve-out advisory.