A Transition Service Agreement (TSA) is a contract signed alongside — but separate from — the main sale agreement in a divestiture or carve-out. Under it, the seller keeps providing specific operational services to the business being sold, for a defined period after the deal closes, while the buyer builds the capability to stand on its own.
TSAs exist because a carved-out business almost never runs independently on day one. Its email system, ERP access, payroll processing, and IT help desk usually still sit inside the parent's infrastructure. A TSA effectively rents those services back to the new entity so the deal can close on the timeline the lawyers and financiers have agreed to, even though the operational separation isn't finished yet.
What a TSA typically covers
Most TSAs are built around a defined set of workstreams. Industry analysis of carve-out TSAs consistently identifies eight recurring categories: IT systems and infrastructure, ERP and accounting, HR and payroll, customer support, procurement and supply chain, tax filing, treasury, and marketing or brand co-use.
These workstreams don't wind down at the same pace. IT and infrastructure is almost always the longest-running — commonly cited around 12 months on average — followed by ERP and accounting (roughly 10 months) and HR and payroll (around 9 months). Marketing co-use and treasury tend to close out fastest, often within 3 to 6 months. Overall TSA durations span a wide range depending on deal type: standalone private acquisitions with narrow scope might run 3 to 6 months per workstream, while complex carve-outs from a parent company commonly run 6 to 24 months, and public-to-private take-privates — with their added tax and regulatory complexity — can extend past 12 months on the finance side alone.
Why TSAs are harder to manage than they look
On paper, a TSA is a simple idea: the seller helps out until the buyer is ready. In practice, it's one of the most quietly consequential documents in the deal.
Analysis from M&A advisory practitioners points to four recurring causes of TSA overruns, and they show up in almost every case study:
- The term is set against the legal calendar, not the separation plan. A 12-month TSA gets signed against what both sides privately know is an 18-month IT separation program, because the deal needed a number by signing, not because 12 months was realistic.
- Scope is discovered after close. Without a full inventory of entangled systems and dependencies built before signing, new services get "found" mid-TSA — and bought back at extension pricing, which is almost always worse than the original rate.
- The buyer under-resources its replacement build. While the service is still being delivered by the seller, the urgency to stand up a replacement doesn't feel real — until the clock runs out.
- There's no acceptance test for "done." Without a defined standard for when a service is considered fully transitioned, there's no clean way to prove completion, and the invoice keeps running past the point where the service was actually usable.
The stakes are larger than they first appear
Buy-side carve-outs aren't a niche transaction type — McKinsey's analysis of deals above $100 million between 2018 and 2023 found they account for roughly 28 percent of all M&A transactions. And separately, Deloitte's 2026 M&A research suggests that 70 to 90 percent of large deals now include some form of carve-out or divestiture component, meaning TSA management has become a mainstream operational discipline rather than an edge case.
Yet McKinsey's more recent research also found that roughly a third of carve-out deals fail to create the value that was originally underwritten at signing — and TSA mismanagement, alongside cultural and process/technology friction, is a recurring factor cited by practitioners. Bain's 2025 survey of M&A practitioners found that after cultural differences and process/technology issues, negotiating and managing TSAs was among the top challenges cited in carve-out integrations.
What "getting it right" actually requires
The agreements that hold up share a few traits: every service is explicitly named rather than described in general terms, priced transparently, assigned an accountable owner on both the buyer's and seller's side, measured against a defined service standard, and given a real exit date rather than an open-ended one. Anything left ambiguous in a TSA doesn't disappear — it becomes cost with no natural mechanism to stop it.
That's the practical reality underneath the legal language: a TSA isn't a formality to get through so the deal can close. It's a temporary operating model for a business that doesn't fully exist yet, and how well it's tracked — service by service, workstream by workstream — determines whether the exit happens on schedule or quietly drifts for another two extension cycles.
Sources: McKinsey & Company, Bain & Company (2025 M&A Practitioners Outlook Survey), Deloitte M&A research, and industry TSA structuring analysis from Dealroom and BD Emerson.