By the MeridianCogent team — built from working with integration offices, separation leaders, and PE operating partners on M&A execution. This perspective is drawn from published carve-out and TSA research across the industry.
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.
The TSA schedule: duration and markup penalties
Before getting into the mechanics, here's the schedule structure that most carve-out TSAs are built on — duration by service, and what happens if you run past it.
| Workstream | Typical Base Duration | Base Monthly Cost (mid-market) | Extension Markup (per month over base) |
|---|---|---|---|
| IT Infrastructure | 10–16 months | €40–55k | 15–20% |
| ERP / Accounting | 8–12 months | €30–45k | 15–18% |
| HR / Payroll | 6–10 months | €15–22k | 15–20% |
| Customer Support | 6–9 months | €10–18k | 12–15% |
| Procurement / Supply Chain | 5–8 months | €12–20k | 15% |
| Tax Filing | 4–8 months | €8–15k | 18–20% |
| Treasury | 3–6 months | €6–10k | 15% |
| Marketing / Brand Co-use | 3–6 months | €4–8k | 10–12% |
The markup isn't arbitrary. It exists specifically to keep the arrangement temporary — a service still running at month 14 of a 12-month term should cost enough more that both sides have a real incentive to finish the cutover rather than let it drift.
Why TSAs are harder to manage than they look
On paper, a TSA is simple: the seller helps out until the buyer is ready. In practice, it's one of the most quietly consequential documents in the deal because it contains four structural failure modes.
1. The term is set against the legal calendar, not the separation plan. A 12-month TSA gets signed because both sides needed a number by signing — even when the real separation plan says 16–18 months.
2. Scope is discovered after close. Without a full inventory of entangled systems built before signing, new services get "found" mid-TSA and priced at extension rates. Common examples: co-mingled SaaS licenses purchased under a single parent-level contract with no line-of-business split, and shared Active Directory domains where user identity, permissions, and security groups are entangled across both companies at a level no org chart shows.
3. The buyer under-resources its replacement build. While the seller is still delivering the service, urgency doesn't feel real until the clock runs out.
4. There's no acceptance test for "done." Without a defined completion standard, there's no clean way to prove a service is transitioned, and the invoice keeps running.
Real TSA cost model
For a mid-market carve-out (€250–500M value):
| Cost Component | Amount |
|---|---|
| Base TSA Period (12 months) | €1.8–2.4M |
| Extended 3 months (avg, with markup) | €0.3–0.5M |
| Discovered services (avg) | €0.4–0.8M |
| Total actual cost | €2.5–3.7M |
Estimated at 1–1.8% of deal value.
The stakes are larger than they appear
McKinsey's analysis of deals above $100 million between 2018 and 2023 found buy-side carve-outs account for roughly 28 percent of all M&A transactions. Deloitte's 2026 M&A research suggests 70 to 90 percent of large deals now include some form of carve-out or divestiture component. Roughly a third of carve-out deals fail to create the value originally underwritten at signing — and TSA mismanagement is a recurring factor. Bain's 2025 survey of M&A practitioners found negotiating and managing TSAs among the top three challenges cited in carve-out integrations.
What "getting it right" actually requires
- Split the TSA into named services + a discovery window. Core services are priced and locked; a separate 90-day discovery period handles services found post-close.
- Own the standalone cost model. Run a bottoms-up rebuild of what services actually cost standalone — often 40–60% higher than parent allocations.
- Price extensions with escalation. Extensions cost 15–25% more per month, by design.
- Run a mock cutover before close. See our breakdown of what Day 1 readiness actually requires.
Lessons learned
- The TSA you sign is not the TSA you pay for. Budget 20–30% contingency for discovered services and extensions — see our full breakdown of where scope creep hides and what it costs.
- Priced at cost + percent is a setup. "Cost plus 10%" often means "we don't actually know what this costs." Push for real numbers.
- The owner matters more than the contract. A TSA with a named accountable owner on both sides, measured against the exit date, runs cleaner than a perfectly written agreement nobody owns.
- For the full mechanics of what a late exit actually costs month by month, see The Real Cost of a Late TSA Exit.
Sources: McKinsey & Company (carve-out analysis, 2018–2023); Bain & Company (2025 M&A Practitioners Outlook Survey); Deloitte (M&A research, 2026); BD Emerson (IT carve-out and TSA structuring analysis); FTI Consulting (carve-out blind spots research).