A carve-out TSA is a transitional services agreement under which the selling parent continues operating shared functions for a carved-out business while it builds standalone infrastructure.

How it works

Day one after a carve-out, the new entity may lack ERP systems, benefits administration, or data centers. The TSA lists services, service levels, pricing (often cost-plus), term length (commonly 12–24 months with extensions), and exit milestones.

Typical TSA scopes: IT helpdesk, SAP hosting, treasury, legal, real estate, manufacturing support. Each service has a migration plan with owners on both sides. Delays inflate costs and can breach covenants if stand-alone EBITDA was modeled without TSA drag.

Founders competing with carved businesses should watch TSA end dates — operational agility often improves after separation completes.

TSAs are negotiated line-by-line: an IT TSA without defined exit criteria can trap the carved business on legacy ERP systems long after the deal closes, inflating stand-alone costs beyond the investment model.

Legal teams should map each TSA service to a standalone owner and migration milestone before signing — not after close when leverage shifts to the parent.

Why it matters

• Investors: Underwrite TSA expenses explicitly; parent pricing may rise at renewal. Short TSAs reduce dependency risk but require faster capex on systems.
• Founders (as operators in carve-outs): Job one is exiting the TSA on schedule — slippage erodes the investment thesis.

Common mistake

Assuming the parent will flexibly extend free support after TSA expiry. Renewals renegotiate at market rates or stop abruptly — plan migrations early with named owners on both sides.

Related ideas

See also carve-out, separation planning, stand-alone EBITDA, and buyout.