Essential Strategies for Sellers Developing a TSA

Strategies To Help Sellers Structure a TSA That Protects Value and Enables a Clean Separation

A robust and comprehensive transition services agreement (“TSA”) is crucial to the success of a carve-out transaction. For buyers, it enables essential continuity of services after closing, such as corporate IT, finance and accounting and HR support, bridging operational gaps until the target is fully integrated or operating independently. For sellers, it allows them to maintain control over certain functions during the transition, ensures they are not burdened with unforeseen costs or obligations and clearly defines the responsibilities and liabilities of both parties.

By taking a strategic approach to negotiations, sellers can help ensure a TSA that facilitates a seamless transaction and protects the financial and operational interests of both parties. Leveraging FTI Consulting’s extensive experience supporting complex transactions, the following strategies provide a practical guide for sellers to develop an effective TSA.

Define the Schedule of Services

Sellers should assess what services buyers may require and determine which they can and are willing to provide, focusing on managing financial exposure and limiting operational burden.

Assess Contractual and Operational Feasibility: Review vendor contracts to confirm which services can be legally provided under the TSA. For example, payroll providers, real estate subleases and systems like enterprise resource planning (“ERP”) often require third-party consents, which may incur fees. Identify operationally complex or costly services, such as benefits administration or treasury, and consider excluding them to streamline delivery.
Exclude Strategic or Sensitive Functions: Avoid providing services related to post-closing strategy, such as financial planning, sales forecasting or marketing. These functions can expose proprietary knowledge and entangle sellers in long-term decisions. Maintain a focus on operational support to reinforce boundaries and avoid exposure to strategic or commercial risk.
Understand the Buyer Type: Tailor the TSA based on whether the buyer is strategic (likely to integrate the target) or financial (likely to operate it independently). Strategic buyers may require a narrower scope and shorter duration. Financial buyers, such as private equity sponsors, often require broader services and longer timelines to support the stand-up of a new platform.
Mitigate Stranded Costs Proactively: Stranded costs, such as underutilized staff, systems or facilities, can erode margins following a divestiture. Enable buyers to exit specific functions in a phased manner to reduce delivery complexity and protect the seller’s cost base. Evaluate changes to scope and duration through a lens of cost recovery.

Price With Precision and Confidence

TSA pricing should reflect the true cost and complexity of services while also providing financial fairness. Sellers that provide TSA services effectively act as shared service providers during the contract period and should account for that role in pricing. This may include an administrative or service fee to reflect the effort required to enable and manage TSA delivery.

Capture Comprehensive Costs: Include both direct costs (e.g., personnel, systems) and indirect costs (e.g., administrative overhead and efforts required to set up or manage TSA delivery). Consider incorporating a service fee or markup to account for oversight, coordination and infrastructure.
Incentivize Predictability: Apply premium pricing for service extensions or modifications. This compensates for operational disruptions and encourages the buyer to adhere to the original scope and timeline.
Price Specialized Services Separately: Activities such as data migration, application support or custom reporting often require significant resources. Price these separately, preferably on a time-and-materials basis, to ensure fair compensation.
Streamline Billing Operations: Establish a clear and robust billing process with quality reviews to ensure accurate and timely invoicing. This minimizes disputes, protects cash flow and reinforces consistent delivery standards.

Demand Transparency and Establish Robust Governance

Effective TSA execution relies on clarity, predictability and structured oversight. A strong governance framework helps manage interdependencies, resolve issues efficiently and protect the seller’s operational resources.

Mandate Advance Notice: Require 30- to 60-days’ notice for service exits, modifications or extensions. This allows the seller to reallocate resources and mitigate stranded costs while maintaining business continuity.
Require Transition Plan Visibility: Contractually obligate the buyer to share their transition roadmap, including milestones, resource needs and timing dependencies. Transparency into the buyer’s plan enables the seller to anticipate pressure points and align support effectively.
Establish Governance Structures: Form a joint TSA governance committee with representatives from both parties. Hold recurring meetings (e.g., biweekly) to monitor execution, track performance and address emerging issues. Define escalation paths to ensure timely resolution of disputes or delays.
Define Knowledge Transfer Boundaries: Set clear limits on knowledge transfer activities such as training, documentation or system walkthroughs to avoid scope creep. Specify the duration, format and delivery method to maintain focus on defined support services.
Establish Post-TSA Communication Protocols: If the buyer requires post-TSA support (e.g., for tax inquiries, royalties or legal requests), designate appropriate points of contact in advance to avoid reengaging broader operational teams after exit.

Fortify Intellectual Property and Data Security

Protecting proprietary assets and sensitive data is critical to mitigating risks during TSA execution. Sellers should ensure the TSA includes clear protocols that safeguard information while enabling required service delivery.

Restrict Data Access: Limit the buyer’s access to only the data necessary to perform agreed-upon services. Establish defined protocols for how the buyer or any third-party provider may access seller systems, particularly for activities such as data migration.
Safeguard Intellectual Property: Include robust clauses to prevent the buyer from retaining, repurposing or disclosing any proprietary information post-TSA. This is especially important for custom systems, tools, processes or trade secrets embedded in the services.

Build Robust Exit Mechanisms

A well-defined exit strategy is essential to avoid prolonged entanglements and support a clean, efficient separation. Sellers should ensure the TSA includes clear criteria and structured options to manage service exits proactively.

Define Exit Criteria: Specify measurable criteria for terminating each service, such as successful ERP migration or completion of the payroll system transition. This helps prevent premature or delayed exits and ensures both parties are aligned on when a service is no longer required.
Enable Partial Service Exits: Allow buyers to exit individual services independently of the overall TSA. This flexibility reduces costs for both parties and supports transitions that progress at different speeds across functions.
Plan for Early Termination: Include provisions that allow the buyer to terminate services ahead of schedule with appropriate notice and cost recovery mechanisms. This helps protect the seller from stranded costs while enabling commercial flexibility.

Embed Reasonable Performance Metrics and Accountability

To ensure service quality and maintain alignment throughout the TSA period, sellers should include clearly defined performance expectations and shared accountability measures. These elements help manage buyer expectations and reduce the risk of disputes.

Set Clear Performance Expectations: Define qualitative benchmarks for key services, such as system availability or financial reporting accuracy. Use language like “best efforts to maintain service levels consistent with historical performance” to avoid overcommitting while still signaling accountability.
Implement Collaborative Oversight: Use the joint governance committee to monitor service performance through regular check-ins. Discuss feedback, flag potential issues early and agree on remediation plans where needed.
Address Buyer Responsibilities: Include provisions that hold the buyer accountable for delays or failures to provide required inputs (e.g., data, access, approvals). Consider remedies such as timeline extensions or incremental fees to protect the seller from unfair performance penalties.

Anticipate and Manage Change

Change is inevitable during TSA execution, whether driven by buyer delays, integration shifts or unforeseen complexities. Sellers should build in flexible yet controlled mechanisms to manage change without compromising cost, timeline or risk posture.

Formalize the Change Management Process: Establish a clear process for handling scope changes, such as new service requests, extensions or modifications. Require formal change orders with agreed-upon pricing, timelines and resourcing to prevent scope creep and maintain transparency.
Plan for Common Contingencies: Anticipate disruptions such as vendor delays, system incompatibilities or staffing constraints. Include contingency clauses that allow for timeline extensions, revised service methods or alternate resource allocations to maintain continuity.

Allocate Risks Fairly

A well-structured TSA should clearly define how risks are distributed between the parties. Sellers must proactively negotiate protections to limit exposure, particularly around service interruptions, external dependencies and buyer misuse of systems or data.

Limit Liability Exposure: Cap the seller’s liability for service disruptions or errors, excluding consequential damages unless caused by gross negligence or willful misconduct. This protects against disproportionate financial risk during the TSA period.
Clarify Force Majeure Events: Define events that are beyond the seller’s control, such as vendor outages, cyber incidents or regulatory changes, and that may excuse service performance. Ensure force majeure provisions are clearly defined to avoid misinterpretation and reduce the risk of unfair penalties.
Negotiate Mutual Indemnities: Include indemnification clauses to protect both parties from losses caused by the other’s actions. This may include the buyer’s misuse of systems or data or the seller’s failure to deliver agreed-upon services.

Conclusion: Negotiate with Foresight and Authority

A TSA is more than a contractual bridge; it is a strategic tool that protects the seller’s interests while enabling a seamless transition for the target. By leveraging these strategies and best practices, sellers can negotiate a TSA that minimizes risk, preserves value, maximizes efficiency and maintains operational control.

Approach negotiations with a deep understanding of the seller’s capabilities, a clear view of the buyer’s strategy and a commitment to protecting financial and operational outcomes. The result will be a TSA that not only supports the success of the deal but also enables the seller to quickly shift their attention back to the remaining business.

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Published

July 15, 2025

Key Contacts

Stuart B. Gleichenhaus

Senior Managing Director

Matt Gimlett