A transition services agreement (TSA) is an agreement in which the seller of a business keeps providing certain services to the divested business, or its buyer, for a limited time after the deal closes. IT is often the largest part: network, email, identity, applications, data center hosting, help desk and security. A TSA lets the sold business keep operating while it moves to its own systems or into the buyer’s, and it sets the clock for that work.
At a glance
- A TSA bridges the gap between closing and the point where the sold business can run on its own or the buyer’s IT.
- Scope, duration, fees, service levels and exit terms are negotiated as part of the deal.
- Fees are often based on the seller’s cost, sometimes with a markup, and may rise for extensions.
- TSA end dates commonly drive the timeline and budget of an IT carve-out.
- A reverse TSA covers services flowing the other way, from the sold business back to the seller.
What problem it solves
Inside a larger company, a business unit rarely owns its IT. It runs on the parent’s network, directories, applications, contracts and support teams. If the parent cut those services at closing, the unit would stop working. The buyer, meanwhile, may not be ready to support it on day one.
A TSA solves that timing problem. It keeps defined services running for an agreed period so that the sale can close before separation is complete. It also puts the arrangement in writing: what the seller provides, at what price, to what standard and until when, which reduces disputes and gives both sides a deadline to plan against.
How it works
Service schedules. Each service is listed with its scope, the users and sites covered, the service level (often “as provided before closing”), the fee and the end date. Missing services are a common problem, so many TSAs include a way to add omitted services on agreed terms.
Pricing. Fees are commonly based on the seller’s cost to provide the service, sometimes with a markup. Extensions beyond the original term may cost more, which encourages a timely exit.
Third-party constraints. Many services rely on the seller’s vendor contracts, such as software licenses, circuits and cloud accounts. Those contracts may not permit use by a business the seller no longer owns, so consents, temporary licenses or new contracts may be needed. Whether a contract can be assigned or split depends on its terms and the governing law; assignment generally transfers rights, while a novation transfers the whole contract and releases the original party. This is general information, not legal advice.
Governance. Both sides usually name managers, hold regular reviews and agree how to handle issues, change requests and early termination of individual services.
Exit. The buyer migrates users, sites and data to its own environment in phases, ending each service as it is replaced. Data held on the seller’s systems is exported to the buyer and then deleted or returned as the agreement and applicable rules require.
Buyers that must stand up a separate network quickly often bring in a provider; our managed network services page covers design, rollout and ongoing operations.
When it matters for buyers
- Negotiating a divestiture or carve-out acquisition. TSA scope, length and fees are commercial terms that affect deal value.
- Planning separation. Each TSA service needs a replacement, a migration plan and an exit date.
- After closing. Monthly TSA fees and approaching end dates are a strong reason to keep the program on schedule.
- When vendors are involved. Licenses and circuits used under the TSA may need consents or new contracts.
- Before integrating the unit. A post-merger IT integration plan can move the unit straight into the buyer’s environment instead of building a standalone one.
Questions to ask vendors
These are questions for the seller during negotiation, and for providers who will replace TSA services.
- Which services are covered, for which users and sites, and which are explicitly excluded?
- What service levels apply, and how do they compare with how the service runs today?
- How are fees calculated, and what do extensions cost?
- Can individual services be ended early, and does the fee drop when they are?
- Do the seller’s vendor contracts allow these services to be provided to us, and who obtains any consents?
- For replacement providers: can you deliver standalone services at our sites before the TSA end date?
- How will our data be exported from the seller’s systems, and when will it be deleted?
How it differs from a master services agreement
A master services agreement (MSA) sets reusable legal terms that govern future orders or statements of work between two parties. A TSA governs a defined set of temporary services that one party to a deal provides to the other after closing, with end dates built in. Either may contain negotiated pricing and service level agreement (SLA) terms; the difference is function: an MSA is a framework for an ongoing relationship, while a TSA covers the transition until the business runs on its own or its buyer’s systems.