The flashy parts of a carve-out get the attention. The Transitional Service Agreement quietly destroys more value than the entire integration team adds.
TSAs are systematically under-managed in mid-market PE carve-outs — and the operating discipline required to exit them on time and on budget is now a real differentiator between funds.
Why TSAs Become a Problem
Every carve-out from a corporate seller depends on a TSA — the parent provides services (IT, finance, HR, payroll, sometimes operations) for an agreed period while the carved-out business stands up its own capability. In theory, the TSA is a bridge. In practice, it is a long, expensive, friction-filled tunnel.
TSAs go wrong for predictable reasons. Scoping at signing is rushed and incomplete. Pricing is set on cost-plus terms that incentivise the seller to take their time. Exit milestones are loosely defined and weakly governed. The carved-out company underestimates the work of building its own capability.
The Real Cost
TSA overrun costs come in three forms. Direct cost: monthly TSA fees often higher than the seller's actual delivery cost, sometimes substantially so. Indirect cost: management attention consumed by managing the TSA relationship, which is attention not spent on running or growing the business. Optionality cost: strategic moves the company cannot make while still dependent on the seller's systems and operations.
The combined cost over an extended TSA can easily exceed the originally underwritten integration budget by an order of magnitude. The slippage usually does not show up cleanly in any single line item, which is part of why it goes unmanaged.
How to Run TSAs Like a Programme
Funds that get this right treat the TSA as a structured programme from before signing. They negotiate TSAs with clear scope, milestone-based exit, and asymmetric pricing — costs that rise meaningfully if exit milestones slip. They resource a dedicated TSA exit team — typically interim operators with corporate carve-out experience — focused exclusively on standing up replacement capability.
They track TSA progress at portfolio company board level monthly, with explicit reporting to the fund. And they treat early TSA exit as a value-creation milestone, not just a cost reduction. The funds that do this consistently produce better carve-out outcomes than the funds that delegate it to the portfolio company management team.
What to do next
- Negotiate TSAs with milestone-based exit and asymmetric pricing
- Resource a dedicated TSA exit team with interim operators
- Track TSA progress at portfolio company board level monthly
- Treat early TSA exit as a value-creation milestone in its own right
If this resonates and you are leading a recent or upcoming carve-out where TSA exit is not yet running as leading a structured programme, Grant & Graham can help. We provide carve-out integration, TSA exit management, and interim operating leadership for private equity sponsors and operating partners executing carve-outs across EMEA. Start a conversation.
