VC & PE Glossary
What Is Carve-Out TSA?
Updated
Definition
A carve-out TSA (transitional services agreement) is a contract where the parent company continues providing shared services — IT, finance, HR, logistics — to a newly separated business for a limited period after a carve-out closes.
Useful for: Founders, Investors
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.
Related terms
- Carve-Out — A carve-out is when a parent company separates a division or subsidiary into a standalone business — often sold to PE or taken public — while the parent retains or exits its stake over time.
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Common questions
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