TSA Pre-Signing Review
Run the TSA diligence checklist before the deal team signs. Specialist work.
Fixed-fee proposal in 48 hours. Senior team on day one. The first conversation is always free.
A TSA due diligence checklist gives the deal team a deliberate, sequenced way to find out what the seller is actually committing to deliver and at what price. The work belongs in the diligence window because once the deal is signed, every change becomes an amendment and the leverage collapses. This article maps the checklist onto the questions that matter most for buyer-side teams during diligence. The work sits inside the broader TSA due diligence practice and complements the legal and operational diligence streams the deal team is already running.
Standard diligence streams cover the financial statements, the customer base, the contracts, the IT inventory, and the legal exposures. None of these streams systematically interrogates the TSA itself. The TSA is treated as a closing condition, drafted by the seller's counsel, reviewed by the buyer's counsel, signed alongside the SPA. The buyer absorbs whatever language the seller proposed unless the deal team flags it.
This is the place buyer value leaks. A poorly diligenced TSA can add 200 to 400 basis points of post close cost drag, push exit timelines by 6 to 12 months, and create governance dynamics that consume the operating partner's attention. The cost shows up in extension fees, in stranded costs, in undocumented service expansions, and in disputes that never resolve cleanly.
A dedicated TSA diligence checklist forces the deal team to interrogate the contract on its own terms. The catalog, the price schedule, the service levels, the governance, the exit mechanics, the change controls, the audit rights. Each one gets pressure-tested against the seller's drafting before signature. The buyer side advisor delivers the checklist as a structured pre signing review that runs alongside the main diligence streams.
The deliverable is a redline package and a leverage memo. The redline marks every clause that needs to change. The leverage memo identifies the priority issues to negotiate and the trades the buyer can offer the seller to close the gaps. The work pairs with the TSA pre signing leverage playbook.
The first checklist section interrogates the service catalog. The catalog is the list of services the seller will provide after Day One. Every operational dependency the buyer has on the seller needs to appear in the catalog. Anything missing becomes the buyer's problem at signing because the seller is not contractually obligated to deliver what is not listed.
The checklist forces the deal team to compare the catalog against the operational inventory built during diligence. Where the operational inventory shows 220 systems, the catalog should reference all 220 systems by name and category. Where the operational inventory shows 14 finance processes, the catalog should reference all 14 processes. Gaps between operational inventory and catalog are the most common cause of post close surprises.
Each catalog line needs a clear scope description, a service level, a price, an exit milestone, and a change control treatment. A line that says only "IT support" is unenforceable. A line that says "tier one and tier two help desk support for the carved-out user population, business hours coverage, with monthly volume up to 800 tickets, priced at $42,000 per month" is enforceable.
The buyer should also pressure-test the catalog against the seller's actual delivery capacity. Where the seller proposes services that depend on key personnel the seller plans to retain, the catalog should explicitly require backfill or key personnel commitments. The work pairs with service catalog rationalization.
The pricing checklist asks four questions of every catalog line. First, what is the underlying cost base? Direct headcount, third-party licenses, allocated infrastructure, overhead. Second, what is the mark-up percentage? Market norms run 5 to 15 percent for cost-plus services with higher rates only for specialist or scarce capacity. Third, what is pass-through and how is it billed? Pass-through should be at actual cost with audit rights, not at a marked up rate. Fourth, how does the price flex with volume?
The buyer should require the seller to disclose the cost base for every catalog line during diligence. Sellers often resist because the cost base reveals embedded margin. The buyer holds because without the cost base, the buyer cannot verify that the price reflects actual cost-plus economics rather than a margin grab. The redline should require cost base disclosure as a contractual right tied to audit.
Extension fees are the second pricing trap. Most TSAs include extension fee curves that escalate to 150 percent of base or higher after the original exit milestone. The checklist forces the deal team to model the extension fee curve against realistic exit timelines and to negotiate the curve down where the exposure is large. The work pairs with TSA extension fees explained.
True-up mechanics are the third pricing trap. Pass-through invoices should reconcile against the underlying third-party costs at defined intervals. The checklist asks how the true-up runs, who runs it, and what audit rights apply. Without explicit true-up mechanics, pass-through becomes the seller's discretionary billing channel.
The service level checklist verifies that every catalog line has a measurable service level commitment. Uptime percentages. Response time targets. Cycle time commitments. Error rate caps. The targets should match the historical performance the seller actually delivered before close, not aspirational levels. The seller will sometimes propose loose service levels that protect the seller's own delivery flexibility. The redline tightens them.
Measurement mechanics matter as much as targets. Who measures? How is the measurement reported? What is the dispute mechanism for measurement disagreements? The checklist asks whether the buyer has read only access to the seller's monitoring tools, whether the seller publishes monthly SLA reports automatically, and whether the buyer can audit the measurement.
Service credit remedies should bite when SLAs miss. Typical structures range from 5 to 20 percent of the affected month's fees, escalating with consecutive misses. The checklist verifies the credit calculation, the cap on credits per period, and the carve-outs the seller has proposed. Common seller carve-outs that erode the remedy include force majeure, scheduled maintenance, and buyer cooperation requirements.
Termination rights tied to chronic service failures need explicit calibration. After how many consecutive misses can the buyer terminate the affected service without penalty? The checklist verifies that the threshold is achievable. Sellers often propose thresholds that are theoretically possible but practically impossible to trigger. The work pairs with service credit claims.
The governance checklist asks how decisions get made during the TSA. Who sits on the joint governance committee? How often does it meet? What decisions does it have authority to make? What escalates? The strongest buyer side governance has parity (equal voting), tight quorum requirements, and a clear escalation path that does not let the seller stall.
Change control mechanics determine how the catalog evolves during the TSA. The checklist verifies that change requests follow a defined process, that pricing for change requests is governed by reference rates or cost-plus economics tied to the original catalog, and that the buyer can reject change requests that the seller proposes unilaterally. Without disciplined change control, the catalog inflates and the cost trajectory drifts upward.
Audit rights are the third pillar of governance. The checklist verifies that the buyer can audit the seller's cost base, service level measurements, and pass-through invoices at defined intervals. Audit rights should also allow the buyer to engage an independent third-party auditor. The work pairs with TSA audit rights.
Dispute resolution belongs in the same governance section. The checklist asks how disputes escalate, what forum resolves them, and how long the seller has to cure breaches before remedies kick in. A buyer side dispute resolution clause includes a defined escalation ladder, a 30 to 60 day cure window, and clear remedies if the cure fails. The work pairs with the dispute resolution process.
The exit checklist verifies that the TSA contains explicit exit mechanics that protect the buyer's schedule. Each catalog line should have its own exit milestone date. Early exit rights should be available with reasonable notice periods (30 to 90 days is market). The seller's obligation to support exit transition should be defined. Knowledge transfer requirements should be specific.
The hard exit date is the most important single clause. After this date, the contract terminates regardless of operational readiness. Without a hard exit date, the seller has every incentive to prolong the TSA. With a hard exit date, the seller has aligned incentives to support the buyer's transition. The checklist verifies that the hard exit is present, that the date is realistic but bounded, and that the consequences of missing it are spelled out.
Knowledge transfer obligations should specify deliverables, not just intent. Documentation, training sessions, runbook handoffs, parallel running periods, sign off protocols. The checklist asks whether the seller is bound to deliver specific knowledge transfer artifacts and what remedies apply if the seller fails to deliver them. The work pairs with the knowledge transfer playbook.
Reverse TSA scope should be identified during diligence and flagged for separate treatment. Where the buyer will continue to provide services to the seller after Day One, the diligence team should scope and price those services through the same checklist applied in reverse. The work pairs with the reverse TSA primer.
TSA diligence delivers most of its value when it runs before signing. The redline survives because the seller has not yet hardened its position. The pricing concessions land because the seller still wants the deal to close. The exit mechanics get accepted because the seller has not yet started counting extension fees. After signing, the same changes require amendments and pay-to-play concessions.
The buyer side advisor runs TSA diligence as a standalone workstream alongside the main diligence streams. Two to four weeks of focused work. A senior reviewer pairs with the deal team. The output is a redline package, a leverage memo, and a Day One readiness preview that flows into the post close operating plan.
The engagement model is Fixed Fee or Portfolio Retainer. Fixed Fee for a single transaction. Portfolio Retainer for PE platforms running multiple TSAs in parallel. The buyer side advisor scopes the work during deal intake and delivers a fixed-fee proposal within 48 hours. The work pairs with the diligence timeline and team.
The checklist is the artifact. The discipline is the value. Buyer side TSA diligence is the place where 200 to 400 basis points of post close cost drag either gets prevented or absorbed. The checklist makes the choice visible to the deal team before the choice gets made by default.
The seller-drafted clauses that quietly transfer cost and risk to the buyer. What to flag and how to fix.
Read the article →Building a TSA cost model the deal team can defend. Base case, extension case, stranded cost overlay.
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