By Simon Wells, for Forbes Business Council.
View the article on Forbes.
In my experience, carve-outs rarely allow a clean break. The acquired business typically remains tied to the former parent’s systems and services, leaving the buyer unable to operate independently on day one.
That’s why it’s important to have a solid transition services agreement (TSA): a temporary contract that keeps critical functions running until the business builds its own capabilities. When done well, it’s a bridge to independence. But if done poorly, it can become a choke point—driving up costs, slowing separation and creating operational risk.
Preparation is often where value is won or lost. Bain & Company reports that about half of carve-outs fail to generate shareholder value within two years, and roughly one in four destroy it. From my observations, one of the frequent culprits is a poorly scoped or negotiated TSA. A robust TSA isn’t housekeeping; it’s important protection against value destruction.
In practice, I’ve found that the same pitfalls tend to occur in these situations. Here are six common mistakes buyers make regarding the TSA, how to avoid them, and one bonus tip that can save your team pain during separation.
1. Vague Service Descriptions
The TSA should clearly define all services the seller will maintain during transition. Sellers often push to sign quickly to hit transaction timelines, but speed without clarity tends to produce broad, ambiguous schedules that are hard to govern. Winding down discrete services may then become contentious because the scope is too wide to disentangle.
To fix this problem, document sufficient detail to define each service, and compartmentalise them within the schedule. Include a “reference period” clause to capture baseline service levels, and require that any uncosted services be maintained on a goodwill basis until formal change control applies. That should help preserve continuity without trapping either party in vague commitments.
2. Missing Performance And Quality Standards
A TSA isn’t just about “keeping the lights on”—it should preserve the standard that customers expect. As the buyer, insist that the service standard matches quality delivered by the seller during the reference period. Without clear key performance indicators (KPIs) and service-level agreements (SLAs), standards can slip once the unit is no longer core to the parent.
Treat the TSA like a supplier agreement: Mirror pre-carve-out KPIs/SLAs, include escalation rights and apply remedies if performance persists below standard. Otherwise, you run the risk of dissatisfied clients, reputational damage and erosion of deal value.
3. Misalignment Between The TSA And Separation Plan
Carve-outs—especially in private equity (PE)—often require building new operating models from scratch: finance, payroll, CRM and IT. In my experience, sellers frequently push for short TSA periods without appreciating the steps required to build these capabilities.
If your separation team lacked access pre-close, make sure the TSA timelines allow for proper planning and execution. Push back on artificially short windows, and negotiate realistic service periods. A longer runway may feel like a concession, but it can reduce errors, cost and risk. Unrealistic windows tend to do the opposite.
4. Surprise TSA Charges
Some sellers rebuild TSA cost models from scratch, creating opaque charging structures. Charges should broadly mirror a historical period—often the last six months of the parent’s costs for the same services. Anything materially different deserves scrutiny. Watch for duplicates such as central allocations or recharges that also appear as TSA line items.
Ensure charges stop once the notice periods expire and standalone services go live, avoiding stranded or overlapping costs. Put in place clear governance with regular invoice reviews so you pay only for services that are actually in operation.
5. Rigid Terms With No Flex
As separation progresses, reliance on the parent decreases. Without built-in flexibility, however, buyers can get stuck paying for services long after they’re needed. The TSA should allow discrete services to be wound down “in part or in whole.” Set reasonable notice periods and a clear change process to streamline handovers and prevent disputes. Include cooperation obligations—especially consent for you as the buyer to engage directly with incumbent suppliers while new services are being stood up. Without this, delays and bottlenecks are much more likely.
6. Ignoring Employee Movements
Standard TSAs cover only the “acquired employees” listed at signing. But businesses are dynamic: People join, leave and change roles post-close. If the TSA ignores these movements, essential services may unravel.
Because HR, payroll and IT access depend on accurate, current data, the seller should process joiners, movers and leavers until the buyer’s systems are live. Otherwise, you risk payroll errors, security gaps and potential breaches of employment law. Explicitly obligate the seller to support workforce changes throughout the transition.
Bonus: Skipping Third-Party Consents
Post-close, legal ownership typically shifts to the buyer, even though services can still flow through the seller under the TSA. That makes the carved-out business a “third party” under the seller’s supplier contracts. Without the necessary consents in place, your access to core services can vanish overnight. In some cases, the seller may be required to cut off services to avoid breaching its own contracts. Many TSAs exclude liability for supplier refusals, leaving the buyer without recourse.
To avoid this, insist on explicit provisions obligating the seller to obtain key third-party consents in advance. Without them, continuity isn’t merely at risk—it may be unenforceable.
Final Thoughts
A TSA should support the path to independence, not become a trap that ties the buyer to the carve-out’s former parent. Too many carve-outs stumble due to rushed scoping, vague commitments, unrealistic timelines and weak enforcement, so it’s important to anticipate these pitfalls before execution. When done right, your TSA can become what it should be: a practical bridge to a stronger, fully independent business.