TSA Renegotiation
Stop overpaying for transition services. Renegotiate the terms.
Fixed-fee proposal in 48 hours. Senior team on day one. The first conversation is always free.
Understanding TSA cost by function is the first step to controlling it, because transition service costs are not spread evenly across the business. A small number of functions, led by IT, typically account for the large majority of the bill, while others are comparatively minor. Reading the cost by function tells a buyer where to focus negotiation and exit effort, which is the core discipline behind any serious TSA cost reduction program.
TSA cost benchmarking by function answers a practical question: where is the money actually going. A TSA can list dozens of services, but the cost is rarely distributed in proportion to the line count. A handful of functions usually dominate, and the buyer that knows which ones can direct its scarce negotiation and exit effort where it matters.
Function level benchmarks also create a basis for challenge. When a seller proposes a charge for a given function, the buyer that knows the typical range for that function can tell whether the number is reasonable or padded. Without that reference, every charge looks plausible and the buyer negotiates blind.
The ranges that follow are indicative patterns observed across carve-outs, not fixed figures. Every deal differs by size, complexity, and how entangled the business was with its parent. The point is the shape of the distribution, where cost concentrates, rather than a precise number for any single transaction.
In most carve-outs, IT is the single largest function in the TSA, commonly accounting for roughly half of total transition service cost and sometimes more. The reason is structural: a divested business almost always ran on its parent shared infrastructure, applications, networks, and end user services, and unwinding that takes the longest and costs the most.
Within IT, application hosting and ERP access, network and infrastructure, and end user support tend to be the heaviest items. These are the services hardest to replace quickly, so they stay on the TSA longest and accumulate the most cost over the transition period. They are also where extension fees bite hardest when exits slip.
Because IT dominates, it deserves the most negotiation and exit attention. A buyer that gets IT scope, pricing, and exit timing right has addressed the majority of the TSA cost problem. A buyer that lets IT drift addresses everything else and still overpays, because the largest pool of cost was never managed.
Finance and accounting services, including transaction processing, accounts payable and receivable, general ledger, and reporting support, usually form a meaningful but smaller share of TSA cost than IT. They matter because they are sticky: the business cannot stop closing its books or paying suppliers while it stands up its own finance function.
The cost here is often driven by the depth of integration with the parent finance systems. A business that ran on the parent ERP for all financial processing carries a larger and longer finance TSA than one that had its own systems. The exit usually depends on the ERP separation, which ties finance timing to the IT workstream.
Buyers should watch finance services for hidden duration risk. They look modest on a monthly basis, but if their exit depends on a system migration that slips, they extend along with it, and the cumulative cost grows. Sequencing the finance exit against the ERP plan is what keeps this function from quietly overstaying.
HR and payroll services are typically a smaller share again, but they carry outsized sensitivity because they touch every employee. Payroll continuity is absolute: people must be paid correctly and on time through the transition, which is why these services are rarely rushed even when their cost is modest.
Beyond IT, finance, and HR sits a long tail of smaller functions, procurement support, real estate and facilities, treasury, tax, and various operational services. Individually these are minor, but collectively they add up, and they are where scope padding often hides because no single item is large enough to draw scrutiny.
The discipline for the long tail is to scope it tightly and exit it promptly. Each small service is a dependency on the seller and a line of cost, and the buyer should be willing to drop services it does not truly need rather than accept a broad catalog by default. Small charges, multiplied across many services and extended over months, become real money.
Use the function level view to prioritize. Concentrate negotiation and exit effort on the functions that carry the most cost, led by IT, rather than spreading attention evenly across a long catalog. The cost is concentrated, so the effort should be too.
Use benchmarks to challenge pricing. For each major function, compare the seller proposed charge against the typical range and the seller actual cost to provide the service. A charge well above the expected range is a signal to ask for the underlying cost basis and to push back on padding or unjustified mark-up.
Use the function lens to build the exit sequence. Knowing which functions cost the most, and how their exits depend on each other, lets the buyer sequence the wind down to remove the biggest cost first where possible. That is how function level benchmarking turns from an analysis exercise into actual cost reduction.
IT, by a wide margin. In most carve-outs it accounts for roughly half of total transition service cost and sometimes more, because the divested business ran on the parent shared infrastructure, applications, and networks, which take the longest and cost the most to unwind.
Because cost concentrates rather than spreading evenly across the catalog. Knowing which functions carry the most cost lets the buyer direct negotiation and exit effort where it matters, and function level ranges give a basis to challenge whether a seller proposed charge is reasonable.
No. They are indicative patterns observed across carve-outs, not fixed numbers. Every deal differs by size, complexity, and how entangled the business was with its parent. The useful insight is the shape of the distribution, where cost concentrates, not a precise figure for any single deal.
Prioritize the heaviest functions, led by IT; compare each major charge against the typical range and the seller actual cost to spot padding; and sequence the exit to remove the biggest cost pools first. That turns benchmarking from analysis into real cost reduction.
Inside the largest cost pool. Where IT transition spend concentrates.
Read the article →How transition cost scales with the size of the carve-out.
Read the article →The cost separation leaves behind on both sides of the deal.
Read the article →The 90-day governance, IT, finance, HR and procurement separation plan we run on live carve-outs. Get the playbook plus the bi-weekly Day One Letter — short, signal-heavy, buyer-side.
No spam. Unsubscribe in one click. · Read the overview first →
Fixed-fee proposal in 48 hours. Senior team on day one. The first conversation is always free.
Seven buyer-side moves to exit a Transition Services Agreement on time and below budget. The mark-up, the extension-fee curve, exit sequencing, and the 11-month calendar.
A representative benchmark report on where TSA cost-plus mark-up belongs by service category, how to validate pass-throughs, and where the extension-fee curve becomes a penalty. On a representative $48M-revenue carve-out, reading the price stack the way the seller built it recovers $0.7M the headline discount never touches.
One tactic, one benchmark, or one pattern from a recent buyer-side engagement. Short. Signal heavy. Free.
Subscribe to The Day One Letter →