What Is a Transition Services Agreement (TSA)? (2026)
Legal sources define the TSA as a contract. Operators experience it as a countdown clock. What a TSA covers, what it costs, and why the exit is the first value-creation deadline of a carve-out hold.
A transition services agreement (TSA) is a contract under which the seller of a carved-out business keeps providing critical services, typically IT, HR, finance and payroll, to the buyer for a defined period after closing.
TSA in one paragraph
Legal sources define the TSA as a services contract. Operators experience it as a countdown clock. A business carved out of a larger parent almost never has standalone infrastructure on day one: its ERP sits on the parent's instance, payroll runs through the parent's provider, and half the back office is shared. The TSA bridges that gap. The seller keeps running those functions for a fee while the buyer builds its own, and every month on the TSA is a month of dependency on the seller's systems, costs and priorities. For the full context on why these deals need a bridge at all, see the carve-out explainer.
What a TSA typically covers
Most TSAs span the eight back-office workstreams a standalone business needs: IT and ERP, finance and accounting, payroll, HR and benefits, tax, treasury, procurement, and facilities. IT dominates. M&A Leadership Council research puts technology at more than half of total TSA cost, and IT and ERP separation is consistently the longest workstream to exit.
Typical duration and cost
Most TSAs run 6 to 12 months. IT and ERP services typically run 9 to 12, and are the last to switch off. Fees commonly total 1 to 3 percent of deal value across the life of the agreement, which is why sophisticated buyers price the TSA into the deal model rather than treating it as an operational footnote.
| Workstream | Typical duration | Exit difficulty |
|---|---|---|
| IT and ERP | 9 to 12 months | High |
| Finance, accounting and payroll | 6 to 9 months | Medium |
| HR and benefits | 6 to 9 months | Medium |
| Procurement and facilities | 3 to 6 months | Low |
Why the TSA exit is the first value-creation deadline
The stand-up costs of a carve-out land in year one, while the TSA is still running. That makes the TSA exit plan and the 100-day plan the same document read two ways: one lists what the new owner must build, the other lists what the seller will stop providing and when.
The dependency risk is real and asymmetric. The seller is not in the business of providing IT services, and the agreement reflects that: liability caps are narrow, service levels are best-efforts, and the seller's own priorities move on the day the deal closes. A buyer that treats the TSA as a comfortable extension usually discovers that month 10 service quality looks nothing like month 2. Operators who run carve-outs well treat the TSA end date as the first hard operating deadline of the hold and plan the exit workstream from the week the deal signs.
TSA vs reverse TSA
A reverse TSA runs the other way: the buyer provides services back to the seller after closing. It is common when the carved-out unit housed shared functions, a data centre, a billing team, a distribution hub, that the parent still needs while it rebuilds its own.
FAQ
What is a transition services agreement in simple terms?
The seller keeps running parts of the business it just sold, IT, payroll, accounting, for a fixed period so the buyer can stand up its own operations without disruption.
How long does a typical TSA last?
Most run 6 to 12 months. IT and ERP services typically run 9 to 12 months and are the last to exit.
How much does a TSA cost?
TSA fees commonly total 1 to 3 percent of deal value, with technology representing over half of service costs.
What is a reverse TSA?
An arrangement where the buyer provides services back to the seller, common when the carved-out unit housed shared functions the parent still needs.
Why do PE carve-outs need TSAs?
Carved-out businesses rarely have standalone infrastructure at closing. The TSA bridges the gap while the new owner builds independent systems, and its end date is the first hard operating deadline of the hold.
