TSA Pre-Signing Review
Run vendor diligence in parallel with the deal. Specialist work.
Fixed-fee proposal in 48 hours. Senior team on day one. The first conversation is always free.
TSA vendor diligence is the structured review of every third-party contract the carved-out business depends on. Which contracts assign cleanly to Newco. Which require vendor consent. Which sit in the seller's name with the carved-out business as an internal user. Which step up to standalone pricing at exit. The work runs inside the broader TSA due diligence practice and feeds the TSA cost model, the redline package, and the Day One vendor playbook. Vendor surprises are the most common reason a TSA cost model overruns by twenty percent or more.
The first layer is the vendor inventory. Every third-party contract the carved-out business depends on. Software licenses, cloud services, telecom, freight, professional services, facilities, equipment leases, data feeds, payment processors, banking relationships, audit and tax firms. The inventory should run from the strategic suppliers down to the small administrative contracts that nobody flagged but somebody pays.
A working inventory captures more than the vendor name. Each line should carry the contract holder (seller entity or carved-out entity), the annual spend, the renewal date, the assignment clause language, the change of control clause language, and the criticality tier. The diligence team builds this inventory by reconciling the procurement system, the accounts payable ledger, the IT asset register, and the legal contract repository.
Management presentations typically show 50 to 150 vendors. The reality is usually 400 to 1,200 vendors once the cross reference completes. The gap is small contracts paid through the seller's enterprise procurement, departmental SaaS contracts that never went through legal, and shared service vendors that show up once in the seller's books but cover the carved-out business too.
The inventory feeds the TSA catalog. Where the seller plans to pass through vendor cost via TSA, every pass-through line should map to a specific contract in the inventory. Vague pass-through language without contract level detail is unenforceable and almost always favors the seller. The work pairs with pass-through pricing.
The second layer is assignability. Every contract should be classified into one of four buckets. Clean assignment without consent. Assignment with vendor consent required. Vendor in the seller's name with no clean transfer mechanism. New contract required for Newco. The classification drives the Day One readiness work and the TSA scope.
Clean assignment without consent is the easiest path. The contract transfers to Newco at close with notice to the vendor. No negotiation. No price step up. The diligence team should verify the language and confirm there are no implicit consent triggers (change of control, change of use, change of volume).
Assignment with consent required is where most negotiation lives. The vendor has the right to refuse, withhold, or condition consent. Major enterprise vendors usually use this clause as leverage to renegotiate at the higher standalone rate. The diligence team should rank consent vendors by spend and flag the top fifteen to twenty as a focused consent campaign for the period between signing and Day One.
Vendor in the seller's name with no clean transfer is the structural problem. The seller's enterprise agreement covers multiple businesses. The carved-out business cannot inherit the seller's enterprise pricing. The diligence team should identify these contracts early and negotiate either a TSA pass-through that runs until Newco signs its own contract, or a vendor specific transition arrangement. The work pairs with third-party vendor consents.
The third layer is pricing step up. The seller's enterprise contracts often carry volume discounts, multi business pricing, and historical loyalty terms that the carved-out business cannot inherit. At Day One, or at TSA exit, the carved-out business renegotiates each vendor at its true standalone volume. The price almost always goes up.
Typical step ups range from ten to forty percent on enterprise software, twenty to sixty percent on telecom and connectivity, five to twenty percent on commodity goods, and forty percent or more on niche specialty vendors where the seller's enterprise discount was steep. The diligence team should model the step up by category and surface the gap during pre signing.
The step up sits inside the standalone IT bill and the standalone operating cost. If the diligence team misses it, the buyer's value creation plan assumes flat vendor cost into year one and year two when the real number is materially higher. The seller's QoE often does not flag the step up because the seller's books reflect the enterprise rate.
The buyer side advisor models two cost views during diligence. The TSA vendor bill, which captures pass-through pricing during transition. The standalone vendor bill, which captures the realistic rate after Newco signs its own contracts. The gap goes into the deal model as a known cost increment. The work pairs with TSA cost modeling.
The fourth layer is strategic vendor risk. A handful of vendors typically control the carve-out timeline. The ERP vendor, the cloud provider, the major SaaS platforms, the identity provider, the freight contracts on the manufacturing side, the payment processor on the consumer side. If any of these vendors refuses to transfer cleanly, the whole Day One or TSA exit plan slips.
The diligence team should produce a strategic vendor map. For each of the top fifteen to twenty vendors, the map should show the contract holder, the assignment mechanism, the consent risk, the pricing step up, the renewal date, the implicit leverage the vendor has, and the mitigation plan. The deal team uses the map to decide which conversations need to happen pre signing and which can wait until between signing and Day One.
Renewals during the TSA period are a hidden risk. If a major vendor contract renews three months before TSA exit, the carved-out business has to choose between locking in another multi year term that may not match Newco's standalone plan, or letting the contract expire and rushing a replacement. The diligence team should flag every contract that renews within the TSA window plus six months.
Some strategic vendors will use the carve-out as leverage to renegotiate against the seller too. The seller's deal team usually wants to keep these conversations away from the seller's other business relationships. The buyer side advisor coordinates timing so the buyer's leverage is preserved. The work pairs with the TSA exit vendor management playbook.
The fifth layer is Day One vendor readiness. A small set of vendors absolutely must be operational under the Newco name on Day One. Banking, payment processing, payroll provider, primary insurance carrier, telecom for customer facing service, freight for shipping operations, and any other vendor that touches a customer or employee transaction on Day One.
The Day One vendor list should be short, typically twenty to forty vendors, and each one should have a named owner, a target Day One state (new contract, assignment, TSA pass-through), and a backup option. The diligence team builds the list during pre signing and the Day One Readiness Program drives it to completion.
Some Day One vendors require six months or more of advance work. New banking relationships need KYC, AML review, and credit committee approval at the buyer's bank. Insurance binders need underwriter review and quote refresh. New payroll relationships need parallel runs of one or two cycles to validate. Diligence should flag these long lead vendors and start the work the day the deal signs.
The remaining vendor population, typically several hundred contracts, can be addressed during the TSA period under a structured vendor consent and migration plan. The buyer side advisor sequences the migration work so the largest spend categories transition first and the long tail follows. The work pairs with vendor contract assignments.
TSA vendor diligence is most effective when it runs in parallel with the financial and IT diligence streams. The vendor findings feed the TSA cost model, the redline package, the consent strategy, and the Day One readiness playbook. Without the vendor deep dive, the TSA gets signed with pass-through language that the buyer cannot challenge and the buyer absorbs the step up cost after Day One.
The engagement model is Fixed Fee or Portfolio Retainer. Fixed Fee covers a single deal with a focused 3 to 5 week vendor sprint. Portfolio Retainer covers PE platforms with a consistent vendor diligence method applied across multiple deals. The buyer side advisor scopes the work during deal intake and delivers a fixed-fee proposal within 48 hours.
The output is a TSA vendor diligence report. The full inventory with classification, the strategic vendor map, the pricing step up model, the Day One vendor list, the consent campaign plan, and the redline recommendations for the TSA. The report becomes the operating playbook for Newco procurement from signing through Day One and into the TSA period.
The buyer side advisor coordinates with the deal team's legal advisor on contract assignment language and with the QoE advisor on cost normalization. The vendor diligence stream is small in headcount but high in commercial impact. The work pairs with the diligence timeline and team.
The buyer-side checklist for catalog, pricing, governance, and exit before the term sheet hardens.
Read the article →The buyer-side stream that uncovers separation cost, dependency risk, and realistic stand-up timeline before signature.
Read the article →The questions a buyer-side TSA specialist asks management before pricing locks in.
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.
On a representative $48M-revenue carve-out, the CIM models the TSA at $4.2M. Read in diligence — separation scope tested, draft TSA red flags caught, stranded cost sized — the true cost lands at $6.8M. That $2.6M gap is set before signing, and it is only visible to the buyer who reads the separation in diligence rather than discovering it in delivery.
One tactic, one benchmark, or one pattern from a recent buyer-side engagement. Short. Signal heavy. Free.
Subscribe to The Day One Letter →