Transition Services Agreement

What Is a Transition Services Agreement?

A transition services agreement (TSA) is a contract entered into at or before the closing of an M&A transaction that obligates the seller to continue providing specified operational services to the acquired business for a defined transition period (Corporate Finance Institute). TSAs ensure that the acquired business can continue operating without disruption while the buyer establishes its own capabilities to perform those services.

TSAs are most common in carve-out and divestiture transactions, where the divested business relied on the seller’s shared services infrastructure (IT, finance, HR, facilities) and cannot immediately operate independently.

When TSAs Are Needed

Carve-Out Transactions

When a parent company sells a division, that division typically shared the parent’s:

• IT systems — ERP, email, CRM, data infrastructure
• Finance and accounting — general ledger, payroll, accounts payable, tax compliance
• Human resources — benefits administration, recruitment, HRIS systems
• Facilities — shared office space, warehouses, manufacturing capacity
• Procurement — centralised purchasing contracts and supplier relationships
• Legal and compliance — regulatory filings, insurance, corporate governance

Without a TSA, the divested business would lose access to all these services on Day One — an operationally impossible scenario.

Other Situations

• Founder transitions — a founder who sold the business provides consulting services during the handover
• Technology migrations — the seller provides access to proprietary systems while the buyer implements replacements
• Regulatory transitions — the seller maintains licences or regulatory relationships while the buyer obtains its own

Key TSA Terms

Element	Typical Terms
Duration	6–18 months (extendable by mutual agreement)
Service scope	Detailed service descriptions by function
Service levels	Minimum standards, often “consistent with past practice”
Pricing	Cost, cost-plus (typically 5–10% markup), or market rate
Termination	Buyer can terminate individual services with 30–90 days’ notice
Extension	Available at buyer’s option, often at increased cost
Liability	Limited to fees paid; no consequential damages
Personnel	Seller provides named individuals or functional teams

Structuring an Effective TSA

Service Catalogue

The TSA should include a detailed catalogue of every service to be provided:

• Service description — what exactly the seller will deliver
• Service level — measurable standards or benchmarks
• Key personnel — named individuals responsible for delivery
• Dependencies — what the buyer must provide to enable the service
• Exit criteria — how the buyer demonstrates readiness to assume the service

Pricing Models

Model	Description	Best For
Cost	Seller recoups actual costs only	Short transitions, cooperative relationships
Cost-plus	Cost plus a margin (5–15%)	Standard approach, compensates seller for effort
Market rate	Pricing based on comparable third-party services	Longer transitions, arm’s-length relationships
Declining scale	Pricing increases over time to incentivise buyer migration	Incentivising rapid transition

TSA Risks and Challenges

For the Buyer

• Dependency — reliance on the seller for critical services creates vulnerability
• Service quality — the seller’s incentive to provide excellent service diminishes over time
• Cost escalation — TSA pricing may increase, particularly for extensions
• Integration delays — the availability of TSA services may reduce urgency to build independent capabilities

For the Seller

• Resource drain — providing TSA services ties up the seller’s personnel and systems
• Liability exposure — service failures can create claims and disputes
• Stranded costs — the seller may retain infrastructure and headcount longer than planned
• Operational risk — providing services to a former subsidiary creates data security and compliance risks

TSAs in Asia Pacific

Transition services agreements in Asia Pacific M&A require careful structuring to account for the region’s operational complexity. In cross-border transactions, TSAs must address multi-jurisdiction IT infrastructure, varying employment laws, and different regulatory frameworks across countries. In Australia, TSAs for carve-out transactions in healthcare and financial services must ensure compliance with licensing and regulatory requirements during the transition period. In Japan, the emphasis on long-term employment relationships means TSAs must carefully address the transfer or secondment of key personnel. Across Southeast Asia, TSAs for regional businesses operating across multiple ASEAN countries must address different tax, employment, and data protection regimes in each jurisdiction. AI-native platforms like Amafi help buyers and sellers plan and manage transition services across Asia Pacific, reducing integration risk and ensuring operational continuity.