The TSA
Reading a TSA that the seller drafted?
The buyer-side read is different. Pre-Signing review pressure tests the document while the deal still has leverage.
A Transition Services Agreement, or TSA, is the contract under which the seller continues to deliver operational services to a carved-out business after the deal closes. It defines the scope, pricing, term, exit terms, service levels and governance that bridge the gap between Day One and operational independence.
No carved-out business is fully self sufficient at close. Payroll runs on the seller's HR system. Email lives in the seller's tenant. Procurement contracts are in the seller's name. Treasury, tax, IT, finance, HR, legal and cybersecurity functions are all entangled with the parent. The TSA is the temporary scaffolding that keeps Newco operational while those dependencies are unwound, separated or rebuilt.
A typical TSA covers six to twenty four months, names the services line by line in a service catalog, prices each line on a cost-plus basis with stated assumptions, sets the SLAs the seller must meet, defines extension fees that escalate the longer the buyer stays, and sets out the exit ramp for ending each service. The document is usually drafted by the seller's lawyers and finance team. The buyer inherits the result.
For a private equity buyer, the TSA is the most consequential operational document inside the deal. It controls how fast the buyer can execute the value creation plan, how much margin is leaked to the seller through mark-up and pass-through charges, and how exposed the portfolio company is to service degradation while it still depends on the parent for critical functions.
In the signed purchase agreement, where the TSA is usually an exhibit. In diligence materials and the seller's data room. In sponsor investment committee memos that need to commit to a Day One operating model. In the value creation plan, where the timeline for full operational independence is set. In governance committee minutes throughout the term. In the next sponsor's diligence, where unresolved TSA dependencies surface as stranded costs.
Service Catalog · Reverse TSA · Day One Readiness · Exit Ramp · Newco · Carve-Out
The buyer-side read is different. Pre-Signing review pressure tests the document while the deal still has leverage.