Mid-market industrial carve-out: cost-plus reset before signature

The Challenge

What the buyer walked into.

A private-equity buyer was in a competitive bid for a mid-market industrial business. The seller's draft Transition Services Agreement priced services at cost-plus 32 percent across nine service families, with thin definitions of what “cost” included and no exit ramp. With signing imminent, the deal team had no independent benchmark for whether the pricing was fair and no leverage memo to support a counter.

The Approach

How the firm ran it.

The firm ran a two-week pre-signing review in parallel with confirmatory diligence. We benchmarked each of the nine service families against market mark-up ranges, identified the families where cost-plus 32 percent was indefensible, and built a leverage memo with three counter positions for the deal team. We rewrote the pricing schedule, tightened the definition of pass-through cost, and inserted an exit ramp with milestone dates.

The Outcome

Where it landed.

The seller accepted a reset to cost-plus 14 percent across the repriced families before signature, with a defined exit ramp. Measured against the original draft, the change protected an estimated $4.1M over the term of the TSA. The buyer signed with a TSA it had actually negotiated rather than inherited.