VC & PE Glossary
What Is Transition Services Agreement?
Updated
Definition
A transition services agreement (TSA) is a post-acquisition contract where the seller provides specified services — IT, finance, HR, operations — to the buyer for a limited period while the business integrates.
Useful for: Founders, Investors
A transition services agreement (TSA) defines how the seller supports the buyer after closing — for a fee and fixed term — while acquired operations migrate to the buyer’s systems.
How it works
Typical TSA services: ERP and billing continuity, payroll processing, benefits administration, cloud hosting, customer support queues, and regulatory filings. Schedules list service level, duration (often 6–24 months), pricing (cost-plus or fixed fee), and termination triggers. Carve-out deals rely heavily on TSAs when a division separates from parent infrastructure — see also carve-out TSA.
Startup trade sales may include lightweight TSAs if product runs on seller AWS accounts or if founders provide engineering transition. Misaligned incentives arise when seller teams want to wind down quickly but buyer integration lags.
Legal teams separate TSA from employment agreements and consulting SOWs to clarify liability and data handling.
Why it matters
- Founders: TSAs can trap key engineers in low-value maintenance instead of new roles. Negotiate headcount caps and hard sunset dates.
- Investors: Extended TSAs delay cost synergies buyers modeled — earn-out disputes sometimes trace to TSA failures.
Common mistake
Signing open-ended TSAs without migration milestones. Buyers defer painful integration; sellers absorb open-ended cost and distraction.
Related ideas
See also carve-out TSA, trade sale, integration planning, and change of control.
Related terms
- Carve-Out TSA — 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.
- Trade Sale — A trade sale is the acquisition of a company by a strategic corporate buyer — a competitor, supplier, or customer — rather than by a financial sponsor or via IPO.
Common questions
Short answers for founders, LPs, and operators