TSA Pre-Signing Review
Scope both directions together. Before you sign.
Fixed-fee proposal in 48 hours. Senior team on day one. The first conversation is always free.
TSA vs reverse TSA is a question of direction. In a standard Transition Services Agreement the seller provides services to the buyer while the carved out business migrates onto its own systems. In a reverse TSA the buyer provides services back to the seller, because the acquired business holds something the seller still needs after closing. The structure is the same, the roles are reversed, and so is every exposure. Both belong in the same TSA exit strategy, scoped as a paired set rather than treated as one contract with an afterthought attached.
In a standard TSA the seller is the provider and the buyer is the recipient. After closing, the carved out business still runs on the seller’s payroll, ERP, email, and other shared services, and the seller keeps delivering them for a defined period while the buyer builds or buys replacements. The buyer pays for the services, holds the service levels, and races to exit as fast as it can.
The buyer’s posture in a standard TSA is exit oriented. Every service has a target migration date, the pricing is structured to make staying expensive, and the governance is built around tracking the exit service by service. The buyer wants the seller out of its operations, and the contract is engineered to make that happen on schedule.
This is the version most people mean when they say TSA. It is the bridge that carries the business from a dependent state at closing to operational independence. The reverse TSA is the mirror image, and it appears in the same deals more often than buyers expect.
In a reverse TSA the buyer becomes the provider and the seller becomes the recipient. This happens when the acquired business holds an asset or capability the seller still relies on after the deal closes. A common case is a carved out unit that historically produced a component, hosted a system, or ran a function the seller’s retained organization continues to use during its own transition.
Now the buyer is on the delivery side. The buyer’s operations team has to provide a service to the seller, on the seller’s timeline, to the seller’s standard, while also trying to run the newly independent business. The seller pays, the seller holds the service levels, and the buyer wants the seller off its resources as quickly as the seller wanted the buyer off in the standard direction.
Reverse TSAs are common in corporate carve-outs where a multi line seller spins off a single business unit but keeps depending on it for a while. A buyer who reviews only the forward TSA and ignores the reverse direction inherits an undefined service obligation that can drain Newco capacity for months. The detail of that direction is covered in the reverse TSA primer.
Cost direction flips first. In a standard TSA the buyer pays the seller. In a reverse TSA the seller pays the buyer, so cost-plus pricing now produces revenue and the buyer has to make sure the price actually recovers full cost plus a fair mark-up for the operational burden. Underpricing a reverse TSA means subsidizing the seller out of Newco’s own margin.
Operational burden flips next. Under a reverse TSA the buyer has to allocate capacity to seller demand, which can constrain the buyer’s own operations if the scope is large relative to its resource base. Service-level exposure flips too: the buyer is now the obligor of service credits rather than the beneficiary, so the buyer needs realistic service levels it can actually meet for a counterparty it has no long term relationship with.
Exit risk and liability flip as well. In a standard TSA the buyer wants out fast. In a reverse TSA the buyer wants the seller out fast, so the buyer needs extension fees and a hard exit date that protect against an open ended capacity drain. And the buyer, as provider, can now be on the receiving end of a service failure claim from the seller, which means liability caps and force majeure protection matter in the buyer’s favor.
Data and intellectual property exposure flips too, and it is the one buyers most often overlook. In a standard TSA the seller holds the buyer’s data while delivering the service. In a reverse TSA the buyer is now handing data, system access, and sometimes proprietary know how to the seller so the seller can keep operating. The buyer needs confidentiality, access limits, and return or destruction obligations written from the provider’s side, because the counterparty receiving that access is the same seller the buyer just negotiated against.
The mistake buyers make is reviewing the forward TSA carefully and the reverse TSA casually, or missing the reverse direction entirely. The two are paired instruments in the same deal, and the buyer’s exposure is the net of both. A favorable forward TSA can be quietly undone by a reverse TSA that commits Newco to serving the seller at a loss with no exit.
Scoping them together also prevents gaps and overlaps. A service that the buyer provides to the seller and the seller provides back to the buyer needs to be reconciled so that pricing, service levels, and exit dates line up. Treating each contract in isolation creates seams where obligations contradict each other or where neither contract covers a dependency both parties assumed.
A paired review reads each contract from the chair the buyer actually sits in. For the forward TSA the buyer is the recipient and wants strong service levels and fast exit. For the reverse TSA the buyer is the provider and wants cost recovery, capacity caps, and a hard stop. The same buyer-side discipline applies to both, with the polarity reversed.
On the reverse TSA the buyer should insist on cost-plus pricing that recovers documented cost plus a mark-up appropriate to the burden, pass-through of any third-party costs incurred on the seller’s behalf, and volume caps so the seller cannot expand demand without compensation. These terms protect Newco’s capacity and margin during a period when both are scarce.
The buyer should also insist on realistic service levels, capped service credit exposure, a meaningful liability cap, and an extension fee that escalates if the seller delays its own transition. A hard exit date matters most of all, because without one the buyer’s operational planning becomes hostage to the seller’s timeline. The seller will resist the hard exit. The buyer should hold firm.
Forward and reverse, the goal is the same: a transition that ends on schedule with the buyer protected on both sides of the deal. Scoping the two together before signing produces a paired structure where neither direction surprises the buyer later. That is the outcome a pre signing review is designed to deliver.
In a standard TSA the seller provides services to the buyer while the carved out business migrates onto its own systems. In a reverse TSA the buyer provides services back to the seller, because the acquired business holds something the seller still needs. The roles, the cost direction, and every exposure are reversed.
Because the acquired business often holds an asset or capability the seller still depends on after closing, such as a component it manufactures, a system it hosts, or a function it runs. The seller needs continuity during its own transition, and the reverse TSA documents that the buyer will provide it for a defined, paid period.
The pricing model is similar, usually cost-plus, but the direction reverses. The buyer is now the provider, so the price has to recover the buyer's full cost plus a fair mark-up. Underpricing a reverse TSA means the buyer subsidizes the seller out of its own margin.
Yes. They are paired instruments in the same deal, and the buyer's true exposure is the net of both. Reviewing them together prevents a favorable forward TSA from being undone by an unfavorable reverse TSA, and it aligns pricing, service levels, and exit dates across both directions.
The buyer becomes the temporary provider. Pricing, scope, and the discipline that contains it.
Read the article →A temporary bridge versus a durable commercial road. Where each service belongs.
Read the article →The mechanics that get either party off the services on schedule.
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.
In a reverse TSA the buyer provides services back to the seller — the unusual seat where you are now the provider, with your own pricing, scope, exit and liability traps. On a representative four-service reverse arrangement, pricing at cost rather than cost-plus-risk leaves roughly $0.6M of real burden unrecovered over a nine-month term.
One tactic, one benchmark, or one pattern from a recent buyer-side engagement. Short. Signal heavy. Free.
Subscribe to The Day One Letter →